area designated as eligible for direct loans may apply for a commitment for the reservation of direct loan funds to be used for the making of loans to eligible veterans for the purchase or construction of such dwellings. Such commitment may be issued on such conditions as the Veterans Administration determines to be proper in the particular case and will be valid for a period of 3 months: Provided, That the Veterans Administration may, for good and sufficient reasons, extend the period of the commitment. No commitment shall be issued unless the builder or sponsor shall have paid an amount equivalent to 2 percent of the funds being reserved, which amount shall be nonrefundable. The commitment shall be nontransferable except with the written approval of the Veterans Administration.

(b) Notwithstanding that direct loan funds may be available for reservation when issuance of a reservation commitment is requested by a builder or sponsor, Veterans Administration may withhold issuance of such commitment in any case in which it determines that the experience or technical qualifications of the builder in respect to home construction are not acceptable, or that other factors bearing on the likelihood of the success of the proposed project are such as to justify withholding issuance of a fund reservation commitment.

[23 F. R. 2340, Apr. 10, 1958]

SALE OF LOANS, GUARANTEE OF PAYMENT § 36.4600 Sale of loans, guarantee of payment.

(a) The Administrator of Veterans Affairs hereby guarantees, in accordance with the provisions of this section, the payment of all loans sold by the Veterans Administration.

(b) Wherever the term "holder" appears in this section it shall mean the purchaser of a loan sold by the Administrator and any subsequent transferee or assignee of such loan.

(c) The holder of each loan sold subject to guaranty shall be deemed to have the Administrator agreed with follows:

(1) To furnish the Administrator with notice of default within 30 days after a loan has become two full installments in default.

(2) To maintain on the real estate a lien of the dignity assigned or transferred to the purchaser by the Administrator.

(3) To maintain insurance in an amount sufficient to protect the security against risks or hazards to which it may be subjected to the extent customary in the locality, and to apply the proceeds of loss payments to the loan balance or to the restoration of the security, as the holder may in his discretion deem proper. Flood insurance will be required in respect to any loan closed on and after March 2, 1974, if the security is located in an area identified by the Secretary of Housing and Urban Development as having special flood hazards and in which the sale of flood insurance is available under the national flood insurance program. The amount of flood insurance required will be equal to the outstanding balance of the loan or the maximum limit of coverage available for the particular type of property under the national flood insurance program, whichever is less.

(4) To obtain a consideration equal to the fair market value of any real estate released from the first lien securing the loan, except where the loan will be paid in full, and to apply the entire consideration in reduction of the principal balance of the loan.

(5) To maintain the tax and insurance account as provided for in the loan instruments and to pay accrued taxes, special assessments, ground or water rents and premiums on fire or other insurance properly chargeable to the tax and insurance account.

(6) To submit to the Administrator notice of any suit or action or other legal or equitable proceeding to which the holder is a party (including a copy of every procedural paper filed on behalf of the holder or served on the holder), brought on or in connection with a loan sold under this section or involving title to, or other lien on, the property securing the loan, within the time that would be required if the Administrator were a party to the proceeding.

(7) To submit to the Administrator for prior approval any proposal to recast or extend the repayment terms of the loan.

(8) To take no action to accelerate the indebtedness or terminate the debtor's interest in the property without the prior approval of the Administrator.

(9) To make advances only for the maintenance and repairs reasonably necessary for the preservation of the security, or for the payment of accrued taxes, special assessments, ground or water rents, premiums on fire or other

insurance against loss or damage to the property, or for other purposes approved in advance by the Administrator.

(10) To furnish the Administrator prompt notice of the cancellation of any repurchase endorsement or notice on the note or bond upon the payment in full of any loan sold pursuant to this section or of the release of the Administrator from liability to repurchase the loan.

(11) To maintain adequate accounting records and to provide the Administrator with such data relating to the loan as he may request incident to his determination of the amount payable in connection with a request for the repurchase of the loan.

(12) To service the loans properly in accordance with established practices.

(13) To permit the Administrator to inspect, examine or audit at reasonable times and places the records of loans which are subject to repurchase under this section.

(14) To sell any loan to the Administrator for the amount specified in paragraph (e)(1) of this section upon request of the Administrator if the loan is six (6) full installments or more in default.

NOTE: In any instance in which the holder desires Veterans Administration prior approval to a proposed action the holder may submit the facts to the Loan Guaranty Officer as provided in paragraph (i) of this section.

(d) The Administrator's guaranty 11ability under this section shall consist of and be limited solely to liability to repurchase the loan from the holder thereof whenever,

(1) The debtor is in default by reason of nonpayment of not less than two full installments and default has continued for three months or more on the date the holder submits its written request for repurchase by the Administrator; or

(2) The property securing the loan has been abandoned by the debtor; or

(3) The debtor has failed to comply with any other convenant or obligation of his loan contract and on the date of the holder's request for repurchase such failure has continued for more than 90 days after the holder's demand for compliance with the covenant or obligation, except that if the failure is due to nonpayment of real estate taxes the failure to pay when due has persisted for a continuing period of 180 days; or

(4) The Administrator determines, upon request of the holder to repurchase any loan, that such repurchase is in the best interests of the Government notwithstanding that the account is ineligible for repurchase under subparagraphs (1) through (3) of this paragraph.

(e) (1) A cash payment shall be made to the holder upon the repurchase of a loan by the Administrator and shall be an amount equal to the price paid by the purchaser when the loan was sold by the Administrator, less repayments received by the holder which are properly applicable to the principal balance of the loan, plus any advances made for the purposes described in paragraph (c) (9) of this section, but no payments shall be made for accrued unpaid interest, except that with respect to loans sold by the Administrator after July 15, 1970, payment will be made for unpaid accrued interest from the date of the first uncured default to the date of the claim for repurchase, but not in excess of interest for 90 days. If, however, there has been a failure of any holder to comply with the provisions of paragraph (c) of this section the Administrator shall be entitled to deduct from the repurchase price otherwise payable such amount as he determines to be necessary to restore him to the position he would have occupied upon repurchase of the loan in the absence of any such failure. Incident to the repurchase by the Administrator, the holder will pay to the Administrator an amount equal to the balance, if any, remaining in the tax and insurance account.

(2) The holder shall be deemed to have received as trustee for the benefit of the Administrator any amounts received on account of the loan indebtedness subsequent to submitting its request to repurchase and shall pay such amounts to the Veterans Administration upon the assignment and delivery of the note, bond and security instruments to the Veterans Administration.

(3) The holder may be reimbursed at any time for any costs or expenses incurred by him which are approved in advance by the Administrator as being necessary to protect the Government's interests.

(f) Notwithstanding any other provision of this section, the Administrator shall be released from liability and shall not be obligated to repurchase any loan in respect to which:

(1) An obligor has been released from personal liability by any act or omission of the holder without the prior approval of the Administrator, except that a holder shall not be under any duty to establish the debt as a valid claim against the assets of the estate of any deceased or bankrupt obligor when such failure will not impair the validity or effectiveness of the lien securing the loan; or

(2) The holder has instituted foreclosure action against the property securing the loan without the prior approval of the Administrator, and such action has proceeded to the point where the judicial sale or sale under the power in the deed of trust has been held or the owner's interest in the property has been terminated by the holder by strict foreclosure, acceptance of a voluntary deed, or by other liquidation action; or

(3) Any material alteration has been made to the note, bond, security instrument, or installment sale contract after sale and delivery of the instruments by the Administrator to the purchaser.

(g) (1) Each employee of the Veterans Administration heretofore or hereafter appointed to or lawfully filling, any position designated in subparagraph (2) of this paragraph is hereby delegated authority within the limitations and conditions prescribed by law to exercise the powers and functions of the Administrator with respect to the sale, assignment, transfer, and repurchase of loans, including, but not limited to the offering of such loans for sale, the acceptance of purchase offers, the assignment or transfer of notes or bonds and security instruments evidencing the loans sold, granting the prior approval of the Administrator under this section, determining the eligibility of the loans for repurchase and to calculate and pay the sum due the holder upon repurchase of the loan by the Veterans Administration. (2) Designated positions:

Chief Benefits Director.

Director, Loan Guaranty Service.
Director, Regional Office.

Director, Center.

Director, Veterans Benefits Office, Washington, D.C.

Loan Guaranty Officer.
Assistant Loan Guaranty Officer.

(h) No waiver, consent, or approval required or authorized by this section shall be valid unless in writing signed by an employee of the Veterans Administration authorized in this section to act for the Administrator.

(i) Whenever prior approval or consent of the Administrator is desired in respect to an action to be taken by a holder of a loan, the holder may address such request to the Loan Guaranty Officer in the Regional Office or Center having jurisdiction over the area in which the real estate security is located.

(j) Notwithstanding any requirement, condition, or limitation stated in or imposed by this section concerning the sale and repurchase of loans, the Chief Benefits Director, or the Director, Loan Guaranty Service, within the limitations and conditions prescribed by the Administrator may take such action as may be necessary or appropriate to relieve undue prejudice to a holder, debtor or other person, which might otherwise result, as long as such action shall not impair the vested rights of any person affected thereby. If such requirement, condition, or limitation is of an administrative or procedural nature, such action may be taken by an employee authorized to act under paragraph (g) of this section.

(k) This section will apply to all loans sold by the Veterans Administration after the effective date of this section which were originated or acquired by the Administrator of Veterans Affairs under Chapter 37, Title 38, United States Code, or Title III of the Servicemen's Readjustment Act of 1944, as amended, except that it shall not apply to direct loans sold pursuant to section 1811(g) of Chapter 37, Title 38, United States Code.

[27 FR 2686, Mar. 22, 1962, as amended at 35 FR 11553, July 18, 1970; 39 FR 7785, Feb. 28, 1974]

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