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(b), or (c) of this section, the consider ation to be paid by the Secretary in return for the property shall be the specified amount: Provided, That if a claim under the guaranty was previously paid, the consideration payable for the property shall be an amount equal to the indebtedness (less the amount previously paid on the guaranty) or the specified amount, whichever is less. If no claim under the guaranty was previously paid, the holder may, pursuant to $36.4321(b) submit a claim within the maximum guaranty liability for the difference between the specified amount and an amount equal to the indebtedness. In the case of an insured loan, the holder may submit a claim for the difference between an amount equal to the indebtedness and the specified amount pursuant to 8 36.4374.

(h) The conveyance or transfer of any property to the Secretary pursuant to paragraphs (a), (b), or (c) of this section shall be subject to the following provisions:

(1) If the holder's notice to the Secretary electing to convey or transfer the property precedes the acquisition of the property by the holder and the holder then acquires the property, the holder shall promptly after such acquisition advise the Secretary of the acquisition. Such advice, or the notice of election if given subsequent to acquisition, shall state the amount of the sucCessful bid (if the property was acquired by the holder at public sale) and shall state the insurance coverage then in force, specifying for each policy, the name of the insurance company, the hazard covered, the amount, and the expiration date.

(2) The holder may cancel any insurance in force when the holder acquires the property, provided the holder has obtained the prior approval of the Secretary. Coincident with the notice of election to convey or transfer the property to the Secretary or with the acquisition of the property by the holder, following such notice, whichever is later, the holder shall obtain endorse ments on all such insurance policies naming the Secretary as an assured, as his/her interest may appear. Such in surance policies shall be forwarded to the Secretary at the time of the conveyance or transfer of the property to

the Secretary or as soon after that time as feasible.

(3) Occupancy of the property by anyone properly in possession by virtue of and during a period of redemption, or by anyone else unless under a claim of title which makes the title sought to be conveyed by the holder of less dignity or quality than that required by this section, shall not preclude the holder from conveying or transferring the property to the Secretary. Except with the prior approval of the Secretary, the holder shall not rent the property to a new tenant, nor extend the term of an existing tenancy on other than a month-to-month basis.

(4) Any taxes, special assessments or ground rents due and payable within 30 days after date of conveyance or transfer to the Secretary shall be paid by the holder if bills therefor are obtainable before such conveyance or transfer.

(5) Each conveyance or transfer of real property to the Secretary pursuant to this section shall be acceptable if the holder thereby convenants or warrants against the acts of the holder and those claiming under the holder (e.g., by special warranty deed) and if it vests in the Secretary or will entitle the Secretary to such title as is or would be acceptable to prudent lending institutions, informed buyers, title companies, and attorneys, generally, in the community in which the property is situated. Any title so acceptable will not be unacceptable to the Secretary by reason of any of the limitations on the quantum or quality of the property or title stated in 836.4350(b) of this

part:

Provided, That (i) at the time of conveyance or transfer to the Secretary there has been no breach of any conditions affording a right to the exercise of any reverter, except that title will not be unacceptable to the Secretary by reason of a violation of a restriction based on race, color, creed, or national origin, whether or not such restriction provides for reversion or forfeiture of title or a lien for liquidated damages in the event of a breach.

(ii) With respect to any such limitations which came into existence subsequent to the making of the loan, full

compliance was had with the require- loss due to damage to or destruction of ments of 836.4324 of this part. The ac- the property or due to personal injury ceptability of a conveyance or transfer sustained in respect to such property pursuant to the requirements of this shall be governed by the provisions of paragraph will be established by deliv this paragraph and paragraph (h)(10) of ery to the Secretary of any of the fol- this section. Ordinary wear and tear lowing evidence of title issued by an in- excepted, the holder shall bear such stitution or person satisfactory to the risk of loss from the date of acquisition Secretary, in form satisfactory to him by the holder to the date such risk of her showing that title to the property loss is assumed by the Secretary. Such of the quality specified in this para risk of loss is assumed by the Secgraph is or will be vested in the Sec retary from the date of receipt of the retary:

holder's election to convey or transfer (A) A title policy insuring the Sec the property to the Secretary or, in the retary in an amount approximately event of receipt of notice of such elecequal to the consideration for the prop tion prior to acquisition, from the date erty, or a commitment for such title of the Secretary's receipt of notice of policy; or

acquisition by the holder: (B) A certificate of record title; or Provided, That if custody over the prop

(C) An abstract of title accompanied erty has not been delivered by the by a legal opinion as to the quality of holder to the Secretary on the date such title of record; or

when the Secretary otherwise would (D) A Torrens or similar title certifi

have assumed the risk of loss, the Seccate; or

retary's assumption of the risk of loss (E) Such other evidence of title as

will be deferred until such custody over the Secretary may approve.

the property is delivered, or until the In lieu of such title evidence, the Sec property has been conveyed or transretary will accept a conveyance or ferred to the Secretary. The amount of transfer with general warranty with re any loss chargeable to the holder may spect to the title from a holder de- be deducted from the amount payable scribed in 38 U.S.C. 3702(d) or from a by the Secretary at the time the propholder of financial responsibility satis- erty is transferred. In any case where factory to the Secretary. In any case pursuant to the VA regulations rejecwhere the holder does not deliver evi- tion of the title is legally proper, the dence of title of the character specified Secretary may surrender custody of in this paragraph, the holder to aid the the property as of the date specified in Secretary in determination of accept- the Secretary's notice to the holder. ability of title shall without expense to The Secretary's assumption of such the Secretary furnish such evidence of risk shall terminate upon such surtitle, including survey, if any, as may render. have been obtained by the holder inci (8) The holder shall not be liable to dent to the making of the loan or at the Secretary for any portion of the tendant to the foreclosure.

paid or unpaid taxes, special assess(6) Except with respect to matters ments, ground rents, insurance precovered by any covenants or warran- miums, or other similar items. ties of the holder, the acceptance by (9) The Secretary shall be entitled to the Secretary of a conveyance or trans- all rentals and other income collected fer by the holder shall conclude the re from the property and to any insurance sponsibility of the holder to the Sec proceeds or refunds subsequent to the retary under the regulations of this date of acquisition by the holder. subpart with respect to the title and in (10) In respect to a property which the event of the subsequent discovery was the security for a condominium of title defects, the Secretary shall loan guaranteed or insured 38 U.S.C. have no recourse against the holder 3710(a)(6) the responsibility for any loss with respect to such title other than by due to damage to or destruction of the reason of such covenants and warran- property or due to personal injury susties.

tained in respect to such property shall (7) As between the holder and the in no event pass to the Secretary until Secretary, the responsibility for any the Secretary expressly assumes such

approved prior to the date the holder is notified of such action.

(Authority: 38 U.S.C. 3732, Pub. L. 100-527) [13 FR 7739, Dec. 15, 1948, as amended at 20 FR 9180, Dec. 10, 1955; 24 FR 2654, Apr. 7, 1959; 28 FR 11505, Oct. 29, 1963; 33 FR 6975, May 9, 1968; 33 FR 18026, Dec. 4, 1968; 34 FR 11095, July 1, 1969; 36 FR 320, Jan. 9, 1971; 40 FR 34591. Aug. 18, 1975; 53 FR 1352, Jan. 19, 1988; 54 FR 27163, June 28, 1989; 60 FR 38262, July 26, 1995; 61 FR 28058, June 4, 1996)

responsibility or until conveyance of the property to the Secretary, which ever first occurs. The holder shall have the right to convey such property to the Secretary only if the property (including elements of the development or project owned in common with other unit owners) is undamaged by fire, earthquake, windstorm, flooding or boiler explosion. The absence of a right in the holder to convey such property which is so damaged shall not preclude a conveyance, if the Secretary agrees in a given case to such a conveyance upon completion of repairs within a specified period of time and such repairs are so completed and the conveyance is otherwise in order. (i)(1) The terms "date of sale" or date of acquisition" as used in this section are defined as the date of the Event (e.g., sale, confirmation of sale when required under local practice, delivery of deed in case of voluntary conveyance, etc.) which fixes the rights of the parties in the property

(2) The term “property” or “real property" as used in this section shall include

(1) A leasehold estate which at the time of closing the loan was not less duration than prescribed by $36.4350(a)(2) of this part, and

(ii) The rights derived by the holder through a foreclosure sale of real estate whether or not such rights constitute an estate in real property under

836.4321 Computation of guaranty

claims; subsequent accounting. (a) Subject to the limitation that the total amounts payable shall in no event exceed the amount originally guaranteed, the amount payable on a claim for the guaranty shall be the percentage of the loan originally guaranteed applied to the indebtedness computed as of the earliest of the following dates:

(1) The date of the liquidation sale; or,

(2) The cutoff date established under paragraph (f) of 836.4319 of this part; or,

(3) The cutoff date established under paragraph (b) of this section.

Deposits or other credits or setoffs legally applicable to the indebtedness on the date of computation shall be applied in reduction of the indebtedness on which the claim is based. Any escrowed or earmarked funds not subject to superior claims of third persons must likewise be so applied.

(b) In any case in which there is a delay in the liquidation sale caused by:

(1) The holder of the loan extending forbearance in excess of 30 days at the request of the Secretary, the cutoff date for computation of the indebtedness shall be 30 days after the date the Secretary determines the liquidation sale would have taken place if there had been no such delay, provided: the net value of the real property securing the loan does not exceed the unguaranteed portion of the indebtedness as of the actual liquidation sale date and such net value will exceed the unguaranteed portion of the indebtedness as ofthe cutoff date;

(2) The Secretary, including the Secretary's failure to provide the holder with advice as to the net value of the security within two working days prior

local law.

(1) Except as provided in paragraph b)(6) of this section, the provisions of this section shall not be in derogation 01 any rights which the Secretary may have under $36.4325 of this part. The Under Secretary for Benefits, or the Director, Loan Guaranty Service, may authorize any deviation from the provisions of this section, within the limitations prescribed in 38 U.S.C. Chapter 37, Fhich may be necessary or desirable to accomplish the objectives of this section if such deviation is made necEssary by reason of any laws or pracuce in any State or Territory or the District of Columbia: Provided, that no such deviation shall impair the rights many holder not consenting to the deMation with respect to loans made or

to a scheduled liquidation sale but ex- that paragraph are applicable afier cluding forbearance exercised at the re- such date has been established. quest of the Secretary, with respect to a holder which has complied with the (Authority: 38 U.S.C. 501) provisions of $36.4319(b) of this part,

(d) Credits accruing from the prothe cutoff date for computation of the

ceeds of a sale or other disposition of indebtedness shall be the date the liq

the security subsequent to the date of uidation sale would have taken place if

computation, and prior to the submisthere had been no such delay;

sion of this claim, shall be reported to (3) A voluntary case commenced the Secretary incident to such submisunder Title 11, United States Code (re- sion, and the amount payable on the lating to bankruptcy), the cutoff date claim shall in no event exceed the refor computation of the indebtedness maining balance of the indebtedness. shall be 30 days after the date the Secretary determines the liquidation sale (Authority: 38 U.S.C. 501) would have taken place if there had

(e) The claimant shall be deemed to been no such delay, provided: the net

have received as trustee for the benefit value of the real property securing the

of the United States any amounts reloan does not exceed the unguaranteed ceived on account of the indebtedness portion of the indebtedness as of the

after the date of the claim, from the actual liquidation sale date and such proceeds of a sale of the security or net value will exceed the unguaranteed otherwise, to the extent such credits portion of the indebtedness as of the exceed the balance of the indebtedness cutoff date.

unsatisfied by the payment of the guar(c) Adjustment of cutoff dates:

anty. The claimant shall immediately (1) Any cutoff date established under pay such amounts to the Secretary to 836.4319(f) of this part or paragraph (b) the extent of the debtor's liability to of this section will be adjusted by a pe the Secretary as guarantor. riod of months corresponding to the number of installment payments, if

(Authority: 38 U.S.C. 501) any, received by the holder and cred (54 FR 27163, June 28, 1989) ited to the indebtedness after the cutoff date is established.

$36.4322 Computation of indebted(2) When a cutoff date is established

ness. under paragraph (b)(2) of this section, In computing the indebtedness for the actual liquidation sale date will be the purpose of filing a claim for payused for purposes of computing the in- ment of a guaranty or for payment of debtedness in any subsequent account- an insured loss, or in the event of a ing between the holder and the Sec- transfer of the loan under § 36.4318 (a), retary; if an earlier cutoff date is in ef or other accounting to the Secretary, fect at the time delay in a liquidation

the holder shall not be entitled to treat sale is caused by the Secretary, such

repayments theretofore made as liqdate will not be modified by applica

uidated damages, or rentals, or othertion of the provisions of paragraph

wise than as payments on the indebted(b)(2) of this section, but will be ex

ness, notwithstanding any provision in tended by an interval corresponding to

the note, or mortgage, or otherwise, to the delay in the liquidation sale caused

the contrary. by the Secretary for purposes of com [13 FR 7278, Nov. 27, 1948] puting the indebtedness in any subsequent accounting between the holder $36.4323 Subrogation and indemnity. and the Secretary.

(a) The Secretary shall be subrogated (3) Any cutoff date established under to the contract and the lien or other 836.4319 of this part or paragraph (b) of rights of the holder to the extent of this section will be considered to be the any sum paid on a guaranty or on acliquidation sale date. Such date will be count of an insured loss, which right modified in accordance with paragraph shall be junior to the holder's rights as (b) of this section if the provisions of against the debtor or the encumbered property until the holder shall have re- of this section provided such official ceived the full amount payable under determines: the contract with the debtor. No par- (i) The loan default was caused by tial or complete release by a creditor circumstances beyond the control of shall impair the rights of the Secretary the obligor; with respect to the debtor's obligation. (ii) There are no indications of fraud,

(b) The holder, upon request, shall misrepresentation or bad faith on the execute, acknowledge and deliver an part of the obligor in obtaining the appropriate instrument tendered for loan or in connection with the loan dethat purpose, evidencing any payment fault; received from the Secretary and the (iii) The obligor cooperated with VA Secretary's resulting right of subroga in exploring all realistic alternatives tion.

to termination of the loan through (c) The Secretary shall cause the in- foreclosure; and, either strument required by paragraph (b) of (iv) Review of the obligor's current this section to be filed for record in the

financial situation and prospective office of the recorder of deeds, or other earning potential and obligations indiappropriate office of the proper county, cates there are no realistic prospects town or State, in accordance with the that the obligor could repay all or part applicable State law. The filing or fail

of the anticipated debt within six years ure to file such instrument for record

of the liquidation sale while providing shall have the legal results prescribed

the necessities of life for himself or by the applicable law of the State

herself and his or her family; or, where the real or personal property is

(v) In consideration for a release of situated, with respect to filing or fail

the Secretary's collection rights the ure to so file mortgages and other lien

obligor completes, or VA is enabled to instruments and assignments thereof.

authorize, an action which reduces the The references herein to “filing for Government's claim liability suffirecord” include "registration” or any ciently to offset the amount of the ansimilar transaction, by whatever name ticipated indebtedness which would designated when title to the encum otherwise be established pursuant to bered property has been "registered”. this paragraph and likely be collectpursuant to a Torrens or other similar able by VA after foreclosure in view of title registration system provided by the obligor's financial situation, such law.

actions would include termination of (d) As a condition to paying a claim

the loan by means of a deed in lieu of for an insured loss the Secretary may

foreclosure, private sale of the proprequire that the loan, including any se erty for less than the indebtedness curity or judgment held therefor, be as

with a reduced claim paid by VA for signed to the extent of such payment,

the balance due the loan holder or enaand if any claim has been filed in bank

bling VA to authorize the holder to ruptcy, insolvency, probate, or similar

elect a more expeditious foreclosure proceedings such claim may likewise

procedure when such an election would be required to be so assigned.

result in the legal release of the obli(e) Any amounts paid by the Sec

gor's liability. retary on account of the liabilities of

(2) Prior to a liquidation sale, an offiany veteran guaranteed or insured

cial authorized to act for the Secretary under the provisions of 38 U.S.C. chap

under provisions of section 4342 of this ter 37 shall constitute a debt owing to

part may approve a partial release of the United States by such veteran.

the Secretary's right to collect a debt

owing to the United States under this Authority: 38 U.S.C. 3732)

paragraph and/or under paragraph (a) (1) Prior to a liquidation sale, an offi- of this section provided such official cial authorized to act for the Secretary determines: under provisions of 836.4342 of this part (i) The loan default was caused by may approve a complete release of the circumstances beyond the control of Secretary's right to collect a debt the obligor: owing to the United States under this (ii) There are no indications of fraud, paragraph and/or under paragraph (a) misrepresentation or bad faith on the

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