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(3) A failure by the holder to comply (b) Any right of a holder to reposse with the provisions of this paragraph personal property may be exercis may result in a partial or total loss of without prior notice to the Secretar guaranty or insurance pursuant to but notice of any such action tak $36.4325(b), but such failure shall not shall be given by certified mail to t constitute a defense to any legal action Secretary within ten days thereafte to terminate the loan.

and (Authority: 38 U.S.C. 3703(C)(1))

(c) The notice required under th

paragraph shall also be provided to t! [45 FR 31065, May 12, 1980)

original veteran-borrower and al

other liable obligors by certified ma $36.4316 Continued default.

within 30 days after such notice is pr (a) In the event any failure of the vided to the Secretary in all cases 1 debtor to discharge the debtor's obliga which the current owner of the pro tions under the loan continues for a pe- erty is not the original veteran-bo riod of 3 months, or for more than 1 rower. A failure by the holder to mal month on an extended loan or on a a good faith effort to comply with th term loan, the holder may at the hold provisions of this subparagraph ma er's option then or thereafter give the result in a partial or total loss of guai notice prescribed in 836.4317.

anty or insurance pursuant to VA Reg (b) The notice prescribed in 836.4317 ulation 36.4325(b), but such failure sha may be submitted prior to the time not constitute a defense to any lega prescribed in paragraph (a) of this sec- action to terminate the loan. A goo tion in any case where any material faith effort will include, but is not lin prejudice to the rights of the holder or ited to: to the Secretary or hazard to the secu (1) A search of the holder's auto rity warrants more prompt action.

mated and physical loan record sys

tems to identify the name and curren (Authority: 38 U.S.C. 3732)

or last known address of the origina (The information collection requirements veteran and any other liable obligors; contained in paragraph (c) were approved by (2) A search of the holder's auto the Office of Management and Budget undermated and physical loan record sys control number 2900_0480)

tems to identify sufficient information [13 FR 7276, Nov. 27, 1948, as amended at 45 (e.g., Social Security Number) to per FR 31065, May 12, 1980; 53 FR 34296, Sept. 6, form a routine trace inquiry through 1988; 61 FR 28058, June 4, 1996)

major consumer credit bureau; 8 36.4317 Notice of intention to fore

(3) Conducting the trace inquir

using an in-house credit reporting ter close.

minal; (See also $36.4319.) Except upon the

(4) Obtaining the results of the in express waiver of the Secretary, a hold- quiry: er shall not begin proceedings in court (5) Mailing the required notices and or give notice of sale under power of concurrently providing the Secretar sale, or otherwise take steps to termi with the names and addresses of all ob nate the debtor's rights in the security ligors identified and sent notice; and, until the expiration of 30 days after de- (6) Documentation of the holder livery by registered mail to the Sec- records. retary of a notice of intention to take such action: Provided, That

(Approved by the Office of Management an (a) Immediate action as required

Budget under Control Number 2900-0530) under 38 CFR 36.4346 (i), may be taken (58 FR 29116, May 19, 1993) if the property to be affected thereby has been abandoned by the debtor or $36.4318 Refunding of loans in defaul has been or may be otherwise subjected (a) Upon receiving a notice of defaul to extraordinary waste or hazard, or if or a notice under $36.4317, the Sec there exist conditions justifying the retary may within 30 days thereafte appointment of a receiver for the prop- require the holder upon penalty of oth erty (without reference to any contrac- erwise losing the guaranty or insu tual provisions for such appointment); ance to transfer and assign the loa

other superior lien or judicial sale. Such notice shall be accompanied by a statement of the account indebtedness and a copy of the liquidation appraisal request, if not previously delivered.

and the security therefore to the Secretary or to another designated by the Secretary upon receipt of payment in full of the balance of the indebtedness remaining unpaid to the date of such assignment. Such assignment may be made without recourse but the transferor shall not thereby be relieved from the provisions of $36.4325.

(b) If the obligation is assigned or transferred to a third party pursuant to paragraph (a) of this section the Secretary may continue in effect the guaranty or insurance issued with respect to the previous loan in such manner as to cover the assignee or transferee.

[13 FR 7276, Nov. 27, 1948, as amended at 45 FR 31065, May 12, 1980; 61 FR 28058, June 4,

(Authority: 38 U.S.C. 3732)

(c) The procedure prescribed in paragraphs (a) and (b) of this section shall not be applicable in any proceeding to which the Secretary is a party, after the Secretary's appearance shall have been entered therein by a duly authorized attorney.

(d) In any legal or equitable proceeding (including probate and bankruptcy proceedings) to which the Secretary is a party, original process and any other process prior to appearance, proper to be served on the Secretary, shall be delivered to the loan guaranty officer of the regional office of the VA having jurisdiction of the area in which the court is situated. Within the time required by applicable law, or rule of court, the Secretary will cause appropriate special or general appearance to be entered in the case by an authorized attorney.

(Authority: 38 U.S.C. 3732)

(e) After appearance of the Secretary by attorney all process and notice otherwise proper to serve on the Secretary before or after judgment, if served on the attorney of record, shall have the same effect as if the Secretary were personally served within the jurisdiction of the court.

$36.4319 Legal proceedings.

(a) When the holder institutes suit or otherwise becomes a party in any legal or equitable proceeding brought on or in connection with the guaranteed or insured indebtedness, or involving title to, or other lien on, the security, such holder, within the time that would be required if the Secretary were a party to the proceeding, shall deliver to the Secretary, by mail or otherwise, by making such delivery to the loan guaranty officer at the office which granted the guaranty or the insurance, or other office to which the holder has been notified the file is transferred, a copy of every procedural paper filed on behalf of holder, and shall also so deliver, as promptly as possible, a copy of each similar pleading served on holder or filed in the cause by any other party thereto. Notice of, or motion for, continuance and orders thereon are excepted from the foregoing.

(b) A copy of a notice of sale shall be similarly delivered by the holder, or the holder's agent or trustee, to the Secretary at the VA Regional Office of jurisdiction at least 30 days prior to the scheduled liquidation sale, or within 5 days after the date of first publication of the notice, whichever is later. A copy of any other notice of sale or acquisition of the property served on the holder or advice of any sale of which the holder has knowledge shall be similarly delivered to the Secretary, including any such notice of a tax sale or

(Authority: 38 U.S.C. 3732)

(f) If following a default, the holder does not bring appropriate action within 30 days after requested in writing by the Secretary to do so, or does not prosecute such action with reasonable diligence, the Secretary may at the Secretary's option fix a date beyond which no further charges may be included in the computation of the indebtedness for the purposes of accounting between the holder and the Secretary. The Secretary may also intervene in, or begin and prosecute to completion any action or proceeding, in the Secretary's name or in the name of the holder, which the Secretary deems necessary or appropriate. The Secretary

shall pay, in advance if necessary, any court costs or other expenses incurred by the Secretary or properly taxed against the Secretary in any such action to which the Secretary is a party, but may charge the same, and also a reasonable amount for legal services, against the guaranteed or insured in debtedness, or the proceeds of the sale of the security to the same extent as the holder (see 836.4313 of this part), or otherwise collect from the holder any such expenses incurred by the Secretary because of the neglect or failure of the holder to take or complete proper action. The rights and remedies herein reserved are without prejudice to any other rights, remedies, or defenses, in law or in equity, available to the Secretary.

credit to the indebtedness the amount specified. The holder then may retain the property or, not later than 15 days after the date of sale, advise the Secretary of the holder's election to convey or transfer the property, or the rights to the property, to the Secretary;

(B) The holder acquires the property, or the rights to the property, at the liquidation sale for an amount in excess of the specified amount, the indebtedness shall be credited with the proceeds of the sale. The holder may elect to convey the property to the Secretary under the terms of paragraph (a)(1)(ii)(A) of this section, unless a bid in excess of the specified amount was made pursuant to paragraph (a)(3) of this section.

(Authority: 38 U.S.C. 3732)

(Authority: 38 U.S.C. 3732(c)) [13 FR 7276, Nov. 27, 1948, as amended at 45 (C) A third party acquires the propFR 31065, May 12, 1980; 53 FR 1351, Jan. 19, erty, or the rights to the property, at 1988; 53 FR 4978, Feb. 19, 1988; 53 FR 42950, the liquidation sale for an amount Oct. 25, 1988, 54 FR 612, Jan. 9, 1989; 54 FR equal to or in excess of that specified, 27163, June 28, 1989)

the holder shall credit to the indebted836.4320

ness the net proceeds of the sale; Sale of security.

(D) A third party acquires the prop(a) Upon receipt by the Secretary oferty, or the rights to the property, at notice of a liquidation sale of any secu the liquidation sale for an amount less rity for a guaranteed or insured loan, than that specified, the holder shall the Secretary shall determine the net credit to the indebtedness the amount value of the security and shall notify specified. the holder of the net value and of the (iii) If a minimum amount has been regulatory provision which will govern specified by the Secretary, the Secthe disposition of the security.

retary's liability under loan guaranty (1) If the net value of the real prop- shall be the total indebtedness less the erty securing a guaranteed or insured amount credited to the indebtedness loan exceeds the unguaranteed portion under paragraph (a)(1)(ii) of this secof the indebtedness, the Secretary shall tion, not to exceed the Secretary's specify in advance of the liquidation maximum liability as computed under sale the minimum amount which shall $35.4321 of this part. be credited to the indebtedness of the (2) If the net value of the real propborrower on account of the value of the erty securing a guaranteed or insured security to be sold, subject to the fol- loan does not exceed the unguaranteed lowing:

portion of the indebtedness: (i) The specified amount in such (i) The Secretary shall notify the cases shall be the lesser of the net holder that no minimum amount will value of the property or the total in- be specified for credit to the indebteddebtedness.

ness on account of the value of the se(ii) If a minimum amount for credit curity to be sold; to the indebtedness has been specified (ii) The Secretary may not accept in relation to a liquidation sale of real conveyance or transfer of the property; property, and:

(iii) The holder shall credit against (A) The holder acquires the property, the indebtedness the net proceeds of or the rights to the property, at the the sale, and the Secretary's liability sale for an amount not in excess of under loan guaranty shall be limited to such specified amount, the holder shall the total indebtedness less the amount

er to avoid foreclosure or other judicial, contractural, or statutory disposition of the obligation or of the security, the consent of the Secretary to the terms of such proposal shall be obtained in advance of such conveyance or transfer. In consenting to the terms of the debtor's proposal the Secretary shall furnish the notice required under paragraph (a) of this section.

credited to the indebtedness not to exceed the Secretary's maximum liability as computed under $36.4321 of this part, and

(iv) The liability of the Secretary shall not be subject to adjustment by reason of any subsequent disposition of the property by the holder.

(3) If a minimum bid is required under applicable State law, or decree of foreclosure or order of sale, or other lawful order or decree, and:

(i) Such minimum bid exceeds an amount which has been specified by the Secretary under paragraph (a)(1) of this section; and

(ii) The holder acquires the property at the liquidation sale for an amount not exceeding the amount legally required; the holder may elect to convey the property to the Secretary pursuant to paragraph (a)(1)(ii)(A) of this section. The amount bid at the sale or the total indebtedness, whichever is less, shall govern instead of the specified amount and for the purpose of determining the Secretary's liability under loan guaranty.

(Authority: 38 U.S.C. 3732)

(b) The holder should not carry out a liquidation sale until the Secretary has furnished the notice required under paragraph (a) of this section. In the event the holder carries out a liquidation sale prior to receiving such notice, the holder shall credit against the indebtedness the greater of:

(1) The net proceeds of the sale; or (2) The amount of the indebtedness or the net value of the property, whichever is less. The provisions of paragraph 2x1)(ii)(A) of this section, which extends to the holder the option of conveying or transferring the property to the Secretary, shall not be applicable, and the Secretary's liability under the loan guaranty shall be the total indebtedness less the amount credited to the indebtedness under paragraph (b) (1) or 2) of this section, not to exceed the Secretary's maximum liability as computed under $36.4321 of this part.

(Authority: 38 U.S.C. 3732)

(d) Upon receipt by the Secretary of notice of a judicial or statutory sale, or other public sale under power of sale contained in the loan instruments, to liquidate any personal property which is security for a guaranteed or insured loan, the Secretary may specify in advance of such sale the minimum amount which shall be credited to the indebtedness of the borrower on account of the value of the security to be sold.

(1) If a minimum amount has been specified by the Secretary, and

(i) The holder is the successful bidder at the sale for an amount not in excess of such minimum amount, the holder shall sell the property pursuant to paragraph (d)(3) of this section and the amount realized from the resale of the property shall govern, instead of the specified minimum amount, in the final accounting for determining the rights and liabilities of the holder and the Secretary,

(ii) A third party is the successful bidder at the sale for an amount equal to or in excess of that specified, the holder shall credit to the indebtedness the net proceeds of the sale,

(iii) A third party is the successful bidder at the sale for an amount less than that specified, the holder shall credit to the indebtedness the amount specified.

(iv) The holder is the successful bidder at the sale for an amount in excess of the specified amount, the indebtedness shall be credited with the proceeds of the sale or the amount realized from the resale of the property pursuant to paragraph (d)(3) of this section, whichever is the greater, unless the bid in excess of the specified amount was made pursuant to paragraph (d)(4) of this section.

Authority: 38 U.S.C. 3732)

(c) When a debtor proposes to convey or transfer any real property to a hold

the successful bidder for an amount not exceeding the amount legally required the amount paid or payable by the Sec retary under the guaranty shall not be subject to any adjustment by reason of such bid.

(2) If a minimum amount has not been specified by the Secretary under paragraph (d)(1) of this section, the holder shall credit against the indebtedness the net proceeds of the sale except as provided in paragraph (d)(4) of this section.

(3) If personal property has been repossessed or otherwise acquired by a holder and no public sale is proposed or required to be held to entitle the holder to effect a further disposition of such property, or if the holder is the successful bidder at the sale of personal property as provided in paragraph (d)(1) of this section, the holder shall sell the property within a reasonable time. The holder shall submit to the Secretary a written advice setting forth the price, terms, conditions and the expenses of the proposed sale at least 10 days in advance, and the Secretary shall either assent to such sale in which event the holder shall credit against the indebt edness the net proceeds of the sale or upon agreement to indemnify the holder to the extent of any increased or resultant loss, the Secretary may specify the minimum net price for which the security may be sold. If such amount has been specified, the holder shall sell the personal property within a reasonable time in the open market for the best price obtainable: Provided, that the prior approval of the Secretary shall be obtained if the property is to be sold for a net amount less than the specified amount, or if the property is to be sold on terms other than all cash. The ultimate net amount realized by the holder from such sale shall be reported by the

eported by the holder to the Secretary in an account. ing which will determine their respective rights and liabilities.

(4) If a minimum bid is required under applicable State law, or decree of foreclosure or order of sale, or other lawful order or decree, the holder may bid an amount not exceeding such amount legally required. If an amount has been specified by the Secretary and the holder is the successful bidder for an amount not exceeding the amount legally required, such specified amount shall govern for the purposes of this paragraph and for the purpose of computing the ultimate loss under the guaranty or insurance. In the event no amount is specified and the holder is

(Authority: 38 U.S.C. 3732)

(e) If the Secretary has specified ar amount as provided in this section, and the holder learns of any material dam: age to the property occurring prior to the foreclosure sale or to the accept ance of a deed in lieu of foreclosure of prior to any other event to which such specified amount is applicable, the holder shall promptly advise the Secretary of such damage.

(f) The holder in accounting to the Secretary in connection with the dis. position of any property in accordance with paragraph (a), (b), or (d) of this section, may include as a part of the indebtedness all actual expenses 01' costs of the proceedings, paid by the costs of the proceedin holder, within the limits defined in $36.4313 of this part. In connection with the conveyance or transfer of property to the Secretary the holder may include in accounting to the Secretary the following expense items if actually paid by the holder, in addition to the consideration payable for the property under paragraph (g) of this section:

(Authority: 38 U.S.C. 3732)

(1) State and documentary stamp taxes as may be required.

(2) The customary cost of obtaining evidence of title in favor of the Secretary as specified in paragraph (h)(5) of this section but not including title evidence obtained incident to the making of the loan or any expenses incurred to clear title defects.

(3) Amount expended for taxes, special assessments, including such payments which are specified in paragraph (h)(4) of this section.

(4) Recording fees.

(5) Any other expenditures in connection with the property which are approved by the Secretary.

(g) In the event a holder elects to convey or transfer the property to the Secretary pursuant to paragraph (a),

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