(ii) Allowable post-acquisition expenditures or costs paid by the holder which may be included in the accounting with the Secretary are limited to those specified in § 36.4276(c).

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

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

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

(2) The amount of the guaranty payable on the total outstanding indebtedness as of the applicable cutoff date set forth in § 36.4284(a), whichever is less.

(h) If the property securing the guaranteed loan is acquired by a holder pursuant to paragraph (a), (b) or (c) of this section, or §36.4282(g), the following provisions shall apply:

(1) The holder's notice to the Secretary after acquisition shall state the amount of the successful bid at public sale, or in the event of a repossession or a voluntary conveyance, the date of acquisition.

(2) The holder's notice after acquisition shall also provide complete occupancy data. Except with the prior approval of the Secretary the holder shall not rent the property to a new tenant nor extend the terms of an existing tenancy on other than a month-tomonth basis.

(3) Except with the prior approv the Secretary, any taxes or specia sessments which constitute prior due and payable after acquisit the property by the holder shall be by the holder sufficiently in advan the payment due dates to avoid alties and to take advantage of an counts. The holder also may inclu its accounting with the Secretary expenditures for repairs made were reasonably necessary to proj maintain or refurbish the sea property, not to exceed $400. Exp tures in excess of $400 shall no made without the prior approval g Secretary.

(4) As between the holder and Secretary, the holder shall be res sible for any loss due to damage destruction of the property, ordi wear and tear excepted, from the of repossession or acquisition by holder to the date the property been liquidated.

(5) The holder shall include as cre in its accounting with the Secre all rentals and other income colle from the property and insurance ceeds or refunds subsequent to the of acquisition by the holder.

(i) Definitions: (1) The terms dat sale or date of acquisition as used in section are defined as the date of event (e.g., date of repossession. dat sale confirmation when required u local practice, date of acceptanc deed in case of voluntary conveya etc.) which fixes the rights of the ties in the property.

(2) The term property or real prope as used in this section shall include

(i) A leasehold estate therein at the time of closing the loan wa not less duration than that prescri by § 36.4253, and

(ii) The rights derived by the hal through a foreclosure sale of real tate whether or not such rights ( stitute an estate in real property local law.

(j) A claim for the guaranty must clude a cop(y)(ies) of a current c report(s) on the debtor(s).

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

(k) The provisions of this sect shall not be in derogation of any n which the Secretary may have un

186. The Under Secretary for Beneor the Director, Loan Guaranty ce, may authorize any deviation the provisions of this section, n the limitations prescribed in 38 1. chapter 37, which may be necy or desirable to accomplish the tives of this section if such devi1 is made necessary by reason of laws or practice in any State, Tery. or the District of Columbia: ded, That no such deviation shall ir the rights of any holder not inting thereto with respect to made or approved prior to the the holder is notified of such ac

Subject to the limitation that the imum amount payable shall in no it exceed the amount originally anteed, the amount payable on a n for the guaranty shall be the perage of the loan originally guaranapplied to the indebtedness comd as of the date of claim but not r than (1) the date of judgment or ecree of foreclosure; or (2) in noncial foreclosures, the date of publion of the first notice of sale; or (3) ases in which the security is reposed without a judgment, decree, or closure, the date the holder reposes the security; or (4) if no security vailable, the date of claim but not e than 6 months after the first ared default. Deposits or other dits or setoffs including any rowed or earmarked funds legally licable to the indebtedness on the e of the claim computation shall be lied in reduction of the indebteds upon which the claim is based.

Credits accruing from the prois of a sale or other disposition of security shall be reported to the retary incident to such submission, the amount payable on the claim

shall in no event exceed the remaining balance of the indebtedness.

(c) Any allowable expenditures or costs, paid by the holder, and any accrued and unpaid interest to the appliI cable cutoff date as set forth in paragraph (a) of this section at the maximum rate allowable, may be deducted from the proceeds of the sale of the property, or may be included in the accounting to the Secretary on such loan. For loans guaranteed prior to May 8, 1984, the holder may also either deduct from sales proceeds, or include in the accounting, accrued interest at a rate of 6 percent from such cutoff date to the date of resale or other liquidation but not to exceed 60 days. For loans guaranteed on or after May 8, 1984, the holder may also either deduct from sales proceeds, or include in the accounting, accrued interest at a rate 4.75 percent below the contract interest rate from such cutoff date to the date of resale or other liquidation but not to exceed 90 days.

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

(d) In computing the indebtedness for the purpose of filing a claim for payment of a guaranty, or in the event of a transfer of the loan under § 36.4281, or other accounting to the Secretary, the holder shall not be entitled to treat repayments theretofore made, as liquidated damages, or rentals, or otherwise than as payments on the indebtedness, notwithstanding any provision in the note, or mortgage, or otherwise, to the contrary.

(e) Appropriate computation of the guaranty, proceeds of liquidation, and allowable costs for claims filed under § 36.4283(f)(4) are specified in §36.4276(c). [36 FR 1253. Jan. 27, 1971, as amended at 49 FR 22082, May 25, 1984; 58 FR 37861, July 14, 1993]

$36.4285 Subrogation and indemnity.

(a) The Secretary shall be subrogated to the contract and the lien or other rights of the holder to the extent of any sum paid on a guaranty, which right shall be junior to the holder's rights as against the debtor or the encumbered property until the holder shall have received the full amount payable under the contract with the debtor except that where the holder

has entered into a recourse and/or repurchase or indemnity agreement with a dealer or servicer or other entity and the Department of Veterans Affairs pays a claim under guaranty to the holder the Department of Veterans Affairs will not be subrogated to any rights the holder may have under the recourse and/or repurchase or indemnity agreement. No partial or complete release by a creditor shall impair the rights of the Secretary with respect to the debtor's obligation.

(b) The holder, upon request, shall execute, acknowledge, and deliver an appropriate instrument tendered the holder for that purpose, evidencing any payment received from the Secretary and the Secretary's resulting right of subrogation.

(c) The Secretary may cause the instrument required by paragraph (b) of this section to be filed for record in the Office of the Recorder of Deeds, or other appropriate office of the proper county, town, or State, in accordance with the applicable State law.

(d) Any amounts paid by the Secretary on account of the liabilities of any veteran guaranteed under the provisions of 38 U.S.C. 3712 shall constitute a debt owing to the United States by such veteran.

(e) Whenever any veteran disposes of residential property securing a guaranteed loan obtained under 38 U.S.C. 3712, and for which the commitment to make the loan was made prior to March 1, 1988, the Secretary, upon application made by such veteran, shall issue to the veteran a release relieving him or her of all further liability to the Secretary on account of such loan (including liability for any loss resulting from any default of the transferee or any subsequent purchaser of such property) if the Secretary has determined, after such investigation as the Secretary may deem appropriate, that there has been compliance with the conditions prescribed in 38 U.S.C. 3713(a). The assumption of full liability for repayment of the loan by the transferee of the property must be evidenced by an agreement in writing in such form as the Secretary may require. Release of the veteran from liability to the Secretary will not impair or otherwise affect the Secretary's guaranty on

the loan, or the liability of the w to the holder. Any release of lis granted to a veteran by the Sea shall inure to the spouse of sud eran. The release of the veteran liability to the Secretary will stitute the Secretary's prior ag to a release of the veteran from ity on the loan by the holder th This release will not result in th eran being entitled to further loa efits unless the requirement

§ 36.4203 are met.

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

(f) If, on or after July 1, 1972, and eran disposes of residential pro securing a guaranteed loan obtain him or her under 38 U.S.C. 3712. out securing a release from liab with respect to such loan unde U.S.C. 3713(a) and a default s quently occurs which results in ity of the veteran to the Secretary account of the loan, the Secretary relieve the veteran of such liabi the Secretary determines that:

(1) A transferee either immediat remote is legally liable to the retary for the debt of the original eran-borrower established after the mination of the loan, and

(2) The original loan was current the time such transferee acquired property, and

(3) The transferee who is liable to Secretary is found to have been a sa factory credit risk at the time he she acquired the property.

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

(g) If a veteran or any other pers disposes of residential property se ing a guaranteed or insured loan which a commitment was made on after March 1, 1988, and the vetera other person notifies the loan hol writing before disposing of the t erty, the veteran or other person be relieved of all further liability the Secretary with respect to the lo (including liability for any loss ress ing from any default of the purch or any subsequent owner of the pr erty) and the application for assum tion shall be approved if the holder termines that:

(1) The proposed purchaser is cred worthy;

The proposed purchaser is conally obligated to assume the loan e liability to indemnify the Deent of Veterans Affairs for the it of any claim paid under the ity as a result of a default on the or has already done so; and,

The payments on the loan are cur

i these requirements be satisfied, lder may also release the selling n or other person from liability loan. This does not apply if the al for the assumption is granted special appeal to avoid immediate

osure.

rity: 38 U.S.C. 3713, 3714)

1253. Jan. 27, 1971, as amended at 36 32. July 13, 1971; 44 FR 16015, Mar. 16, FR 37474, Sept. 12, 1990]

286 Partial or total loss of guarnty.

There shall be no guaranty liabilon the part of the Secretary in ret to any loan as to which a signato the note, the mortgage or other nty instrument is a forgery. Exas to a holder who acquired the instrument before maturity, for , and without notice, and who has irectly or by agent participated in raud, or in the misrepresentation nafter specified, any willful and rial misrepresentation or fraud by ender, or by a holder, or the agent ither, in procuring the guaranty I relieve the Secretary of liability, all constitute a defense against lity on account of the guaranty of loan in respect to which the willful epresentation, or the fraud, is ticed: Provided, That if a misrepreation, although material, is not le willfully, or with fraudulent int. it shall have only the conuences prescribed in paragraphs (b) d (c) of this section.

b) In taking security required by 38 5.C. 3712 and the §36.4200 series, a der shall obtain the required lien on I property the title to which is such to be acceptable to prudent lending titutions, informed buyers, title npanies, and attorneys, generally in community in which the property situated: Provided, That a title will t be unacceptable by reason of any of

the limitations on the quantum or quality of the property or title stated in § 36.4253. If such holder fails in this respect or fails to comply with any of the requirements of 38 U.S.C. 3712 and the $36.4200 series with respect to:

(1) Obtaining and retaining a lien of the dignity prescribed on all property upon which a lien is required by 38 U.S.C. 3712 or the § 36.4200 series,

(2) Inclusion of power to substitute trustees,

(3) The procurement and maintenance of insurance coverage,

(4) Advice to Secretary as to default, (5) Notice of intention to begin action,

(6) Notice to the Secretary in any suit or action, or notice of sale,

(7) The release, conveyance, substitution, or exchange of security,

(8) Lack of legal capacity of a party to the transaction incident to which the guaranty is granted,

(9) Failure of the lender to see that any escrowed or earmarked account is expended in accordance with the agreement,

(10) The taking into consideration of limitations upon the quantum or quality of the estate or property,

(11) Any other requirement of 38 U.S.C. 3712 or the § 36.4200 series which does not by the terms of said section or regulations result in relieving the Secretary of all liability with respect to the loan.

no claim on the guaranty shall be paid on account of the loan with respect to which such failure occurred, or in respect to which an unwillful misrepresentation occurred, until the amount by which the ultimate liability of the Secretary would thereby be increased has been ascertained. The burden of proof shall be upon the holder to establish that no increase of ultimate liability is attributable to such failure or misrepresentation. The amount of increased liability of the Secretary shall be offset by deduction from the amount of the guaranty otherwise payable, or if consequent upon loss of security shall be offset by crediting to the indebtedness the amount of the impairment as proceeds of the sale of security in the final accounting to the Secretary. To the extent the loss resultant from the failure of misrepresentation

prejudices the Secretary's right of subrogation acceptance by the holder of the guaranty payment shall subordinate the holder's right to those of the Secretary.

(c) If after the payment of a guaranty, or after a loan is transferred pursuant to §36.4281, the fraud, misrepresentation, or failure to comply with the regulations concerning guaranty of loans to veterans as provided in this section is discovered and the Secretary determines that an increased loss to the Government resulted therefrom, the transferee or person to whom such payment was made shall be liable to the Secretary for the amount of the loss caused by such misrepresentation or failure.

$36.4287 Substitution of trustees.

In jurisdictions in which valid, any deed of trust or mortgage securing a guaranteed loan, if it names trustees or confers a power of sale otherwise, shall contain a provision empowering any holder of the indebtedness to appoint substitute trustees or other person with such power to sell, who shall succeed to all the rights, powers, and duties of the trustees, or other person, originally designated.

GUARANTY OR INSURANCE OF LOANS TO VETERANS

AUTHORITY: Sections 36.4300 through 36.4375 issued under 38 U.S.C. 101, 501, 3701-3704, 3710, 3712-3714, 3720, 3729, 3732, unless otherwise noted.

NOTE: Those requirements, conditions, or limitations which are expressly set forth in 38 U.S.C. chapter 37 are not restated in these regulations and must be taken into consideration in conjunction with §§ 36.4300 to 36.4393 of this part, inclusive.

[53 FR 1350, Jan. 19, 1988]

§ 36.4300 Applicability of §§ 36.4300 to 36.4393, inclusive.

(a) Sections 36.4300 to 36.4393 of this part, inclusive, shall be applicable to each loan entitled to an automatic guaranty, or otherwise guaranteed or insured, on or after the date of publication in the FEDERAL REGISTER, and shall be applicable to such loans previously guaranteed or insured to the extent that no legal rights vested under the regulations are impaired.

(b) Title 38 U.S.C., chapter 37, is continuation and restatement of t provisions of Title III of the Servic men's Readjustment Act of 1944, al may be considered an amendment such Title III. References to the se tions or chapters of title 38 U.S.C shall, where applicable, be deemed refer to the prior corresponding prov sions of the law.

(Authority: 38 U.S.C. 501, 3703(c), 3712(g)) [53 FR 1350, Jan. 19, 1988]

$36.4301 Definitions.

Whenever used in 38 U.S.C. chapteror §§ 36.4300 to 36.4375 of this part, inclu sive, and §§ 36.4390 through 36.4393this part, unless the context otherwis requires, the terms defined in this se tion shall have the following meanin

A period of more than 180 days. For th purposes of sections 3707 an 3702(a)(2)(C) of title 38 U.S.C., the terr a period of more than 180 days shal mean 181 or more calendar days of cor tinuous active duty.

Acquisition and improvement loan. loan to purchase an existing propert which includes additional funds for th purpose of installing energy conserva tion improvements or making other al terations, improvements, or repairs.

(Authority: 38 U.S.C. 3703(c)(1), 3710(a) (1), (4. and (7))

Alterations. Any structural change or additions to existing improved real ty.

Automatic lender. A lender that may process a loan or assumption without submitting the credit package to the Department of Veterans Affairs for un derwriting review. Pursuant to 38 U.S.C. 3702(d) there are two categories of lenders who may process loans automatically: (1) Entities such as banks. savings and loan associations, and mortgage and loan companies that are subject to examination by an agency of the United States or any State and (2) lenders approved by the Department of Veterans Affairs pursuant to standards established by the Department of Vet

erans Affairs.

(Authority: 38 U.S.C. 3702(d))