[Department of Veterans Affairs]{.smallcaps}

Veterans Benefits Administration

*275 Chestnut Street*

*Manchester, NH 03101*

September 20, 2001

In Reply Refer To: 373/26

> *LOCAL RELEASE 26-01-18*

TO: ALL SERVICERS AND HOLDERS - FORECLOSURE DEPARTMENT

SUBJ: PROCEDURES FOR OBTAINING 'BIDDING INSTRUCTIONS' FROM

VA

**PURPOSE**

This circular clarifies existing guidance on information that must be
provided to obtain specified amount advice (\"bidding instructions\")
from VA, including cases involving reductions of loan indebtedness in
order to avoid "no-bids".

**BACKGROUND**

Specified Amount or No-Bid: VA is required by law to determine the net
value of a property securing a loan that is about to be terminated. By
regulation (title 38, Code of Federal Regulations (CFR), part 36,
section 36.4319(b)), a loan holder is required to provide a copy of the
notice of sale at least 30 days prior to the scheduled liquidation sale,
and the notice must be accompanied with a statement of the account
indebtedness and a copy of the liquidation appraisal request. VA then
calculates the property net value by reducing the appraised fair market
value by a percentage estimate for acquisition, management and resale
costs that would be incurred should VA acquire the property. The net
value is compared to the loan indebtedness and VA's maximum guaranty
liability to decide whether to specify a minimum amount for credit to
the loan account. When VA specifies an amount and the holder acquires
the property at sale, the property may be conveyed to VA for the
specified amount. If VA does not specify an amount, the holder cannot
convey the property (this is typically called a VA no-bid).

No-Bid Buydown: Upon receipt of a no-bid, a holder may decide to waive
or satisfy a portion of the loan in order to reduce the indebtedness to
an amount which would require VA to provide a specified amount and
acquire the property under 38 CFR 36.4320. This is often called a no-bid
buydown, and may take the form of a reduction of the principal balance,
credit to the escrow or unapplied funds account, forgiveness of unpaid
accrued interest or a combination of these credits. In most cases a
holder does not have time to buy down the debt prior to a cutoff date
established by VA, unless the cutoff date is moved. It has been the
policy of VA to advise holders when issuing no-bids that a cutoff date
may be rescinded and replaced with the date of a buydown, if the holder
completes the buydown within 30 days of the no-bid letter. VA will
consider allowing an additional 30 days for completing a buydown if
requested by the holder in order to obtain investor approval, or if
local law prevents rescheduling a sale within 30 days. A buydown must
not affect the validity of the liquidation sale (or liability of the
obligors), and must be binding on all parties to the loan agreement and
documented by appropriate entries to the account ledgers.

Notice of Buydown: VA Form Letter 26-567, Status of Loan Account -
Foreclosure or Other Liquidation, was modified in order to allow a
holder to show a reduction in the indebtedness and request a specified
amount. Some VA offices routinely required that a copy of the loan
account ledger be attached to VA Form Letter 26-567 when there was a
buydown. Other VA offices did not, but reported that discrepancies often
arose upon receipt of claims under loan guaranty. In some cases, the VA
reviews disclosed that buydowns did not meet VA's requirements and
properties were reconveyed.

**STANDARDIZATION OF BUYDOWN POLICY**

Effective October 1, 2001, it will be the policy of all VA offices to
require written verification of a buydown in the form of a copy of a
payment history which reflects the date and amount of the actual
buydown. VA will not provide new bidding instructions based on a VA Form
Letter 26-567 showing a buydown until such time as written verification
is received. Holders should make certain that the history, which
accompanies the VA Form Letter 26-567, shows the reduction taking place
on the same date reported on VA Form Letter 26-567.

**ARM ADVICE**

VA has distributed VA Form 26-1874a, Claim Form Addendum -- Adjustable
Rate Mortgages, for use by holders and servicers in providing
information required to compute the interest paid and accrued on an
adjustable rate mortgage (ARM). However, this information is actually
needed by VA when reviewing the account indebtedness in order to decide
what bidding instructions to issue. Therefore, whenever holders or
servicers provide VA Form Letter 26-567 on an ARM loan, they should also
provide VA Form 26-1874a. In addition, it will be helpful to VA if the
column labeled "YEAR" actually contains the month, day and year of each
adjustment in interest rate.

**OTHER ISSUES**

It may be necessary for a holder to postpone a foreclosure sale in order
to complete a buydown and provide verification. If no earlier cutoff
date is in effect, the date of the first scheduled foreclosure sale will
become the cutoff date under 38 CFR 36.4319(f). That cutoff date, or an
earlier existing cutoff date, will be moved forward by VA to coincide
with the actual buydown date if the reduction occurs after an earlier
cutoff date. Additional expenses incurred as a result of the
postponement, including but not limited to additional attorney's fees, a
new appraisal, and advances for insurance premiums, will not be
reimbursed by VA.

**QUESTIONS?**

You may call Bruce Keller at (603) 666-7484.

Keith Boerner

Loan Guaranty Officer