Department of

Veterans Affairs

Manual M26-4, Revised

Loan Guaranty Operations for Regional Offices

Claims and Liquidation Policies and Procedures

April 20, 1992

Veterans Benefits Administration

Washington, D.C. 20420

M26-4 Veterans Benefits Administration

Revised Department of Veterans Affairs

April 20, 1992 Washington, D.C. 20420

Manual M26-4, \"Claims and Liquidation Policies and Procedures, Loan
Guaranty Operations for Regional Offices,\" is published for compliance
of all concerned.

By Direction of the Chief Benefits Director

Keith Pedigo

Director, Loan Guaranty Service

Distribution: RPC: 2024

FD

April 20, 1992 M26-4

Revised

[FOREWORD]{.underline}

The Manual M26- series consists of the following:

M26-1 Guaranteed Loan Processing Procedure.

M26-2 Construction and Valuation Policies, Procedures, and Methods.

M26-3 Loan Management and Servicing Policies, Procedures, and Methods.

M26-4 Claims and Liquidation Policies and Procedures.

M26-5 Property Management Policies and Procedures.

M26-6 Direct Loan Procedures and Policies.

M26-7 GIL (Guaranteed or Insured Loan) System.

M26-8 Work Measurement and Performance Standards.

M26-9 Quality Control Procedures.

M26-10 Systematic Analysis Procedures.

M26-11 PLS-Portfolio Loan System Procedures.

M26-12 Specially Adapted Housing Grant Processing Procedure.

Each manual is self-contained and is issued separately. Copies of
individual manuals may be distributed to those concerned with the
activity covered.

Policies and procedures contained in this manual are to be used in
conjunction with 38 U.S.C. chapter 37, as amended, and in 38 CFR
36.4300, 36.4500 and 36.4600 series. When any discrepancy is found to
exist between the policies and procedural requirements in this manual
and the requirements of the statute and related regulations, the latter
requirements will govern.

The duties assigned to specific positions, sections, or divisions in
this manual are to be performed under the direction of, and authority
vested in, the Director.

M26-4 April 20, 1992

Revised

[RESCISSIONS]{.underline}

1\. [Interim Issues]{.underline}

a\. [Complete Rescissions]{.underline}

26-80-14 26-84-14 26-87-16 26-90-18

26-80-18 26-84-22 26-87-20 26-90-23

26-81-7 26-84-23 26-87-23 26-90-28

26-81-12 26-84-38 26-87-26 26-91-1

26-81-15 26-84-39 26-87-27 26-91-3

26-81-16 26-84-42 26-87-28 26-91-5

26-81-20 26-85-5 26-88-4 26-91-7

26-82-3 26-85-12 26-88-6 26-91-8

26-82-9 26-85-18 26-88-12 26-91-9 & erratum

26-82-10 26-86-89 26-88-23 26-91-10

26-82-23 26-86-13 26-89-17 26-92-1

26-82-24 26-86-19 26-89-21 & erratum 26-92-2

26-83-4 26-86-23 26-89-24 26-92-3

26-83-15 26-86-28 26-89-31

26-83-20 26-87-5 26-90-13

26-83-22 26-87-6 26-90-15

26-84-1 26-87-7 26-90-17

b\. Partial Rescissions: 26-90-11, paragraph C.2 and 26-90-19, paragraph
C.3.

2\. [Manual Changes:]{.underline} 1, 6, 9, 12, 14, 16, 19, 21, 25, 27,
28, 29, 30, 31, 32, 36, 37, 38, 39 and 40 to M26-4.

3\. [Circulars:]{.underline} 26-87-19 and 26-90-28.

iv

M26-4

April 9, 1993 Change 4

[TABLE OF CONTENTS]{.underline}

[PARAGRAPH]{.underline} [PAGE]{.underline}

[CHAPTER 1. GENERAL]{.underline} 1-i

1.01 Purpose 1-1

1.02 Scope 1-1

1.03 Administrative Discretion 1-1

1.04 Loan Service and Claims Section 1-1

1.05 Definitions 1-1

1.06 Application of Amendments to Regulations 1-2

1.07 Unusual Cases 1-2

[CHAPTER 2. POLICY]{.underline} 2-i

[Section I. Claims]{.underline}

2.01 Preliminary Examination and Review 2-1

2.02 Supplemental Claims 2-6

2.03 Processing of Claim 2-6

2.04 Withdrawal of Claim 2-16

2.05 Claims Involving Unusual Circumstances 2-17

[Section II. Liquidation of Security]{.underline}

2.06 Termination of Debtor\'s Rights in Property 2-22

2.07 Examination of the Security 2-32

2.08 When Default May Be Cured 2-35

2.09 Reinstatement of Loan by Effecting Compromise Agreement 2-38

2.10 When Default Cannot Be Cured 2-39

2.11 Indicated Equity in Excess of \$5,000 2-39

2.12 Foreclosure or Other Liquidation of Property by Holders 2-39

2.13 Application of 38 CFR 36.4320 2-45

2.14 Liquidation of Personal Property 2-47

2.15 Computation of Specified Amount 2-48

2.16 Liquidation of Combination Loans 2-50

2.17 Deed in Lieu of Foreclosure 2-50

2.18 Specified Amount\--Advice to Holder 2-55

2.19 Bidding by VA 2-60

2.20 Final Accounting Required of Holder 2-60

2.21 Overbids at Foreclosure Sales 2-61

[CHAPTER]{.underline} 3. [PROCEDURES\--CLAIMS AND LIQUIDATION OF
SECURITY]{.underline} 3-i

3.01 Preparation of Analyses When Not Produced by LCS

(Liquidation and Claims System) 3-1

3.02 Manual Analysis of Account and Claim\--Guaranteed Loans 3-1

3.03 LCS Analysis of Account and Claim\--Guaranteed Loans 3-8

3.04 Analysis of Account and Claim\--Supplemental Claims 3-16

3.05 Analysis of Compromise Payment Under Guaranty

When Guaranty Remains in Effect 3-18

v

M26-4

Change 4 April 9, 1993

[TABLE OF CONTENTS]{.underline}

[PARAGRAPH]{.underline} [PAGE]{.underline}

3.06 Preparation and Processing of Vouchers 3-19

3.07 Determination of \"Claim Paid\" Status 3-19

3.08 Advice to Holder 3-20

3.09 Claims Pending Over 1 Year 3-20

3.10 Miscellaneous Claim Processing Notes 3-21

3.11 Holder Not Paid in Full 3-22

3.12 Holder Paid in Full 3-23

3.13 Collection of Indebtedness 3-23

3.14 Analysis After Sale of Property by VA 3-24

3.15 Transfer of Property to VA 3-26

3.16 Bidding by VA at Public Sales 3-27

3.17 Veteran\'s Indebtedness to the United States 3-28

3.18 Veteran\'s Appeal Procedures (Due Process) For

Loan Guaranty Debts 3-33

[CHAPTER 4. GUARANTEED MANUFACTURED HOME LOANS\--SERVICING,]{.underline}

[LIQUIDATION AND CLAIMS]{.underline} 4-i

4.01 Policies and Procedures 4-1

4.02 Required Hazard Insurance Coverage 4-1

4.03 Hazard Insurance Losses 4-1

4.04 Release or Substitution of Security 4-2

4.05 Release of Liability 4-2

4.06 Notice of Default 4-2

4.07 Supplemental Servicing by VA 4-3

4.08 Refunding Under 38 CFR 36.4281 4-4

4.09 Voluntary Conveyance 4-4

4.10 Termination of Debtor\'s Rights in Property 4-5

4.11 Application of 38 CFR 36.4282(f) 4-6

4.12 Application of 38 CFR 36.4283 4-6

4.13 Foreclosure or Other Liquidation of Property by Holder 4-7

4.14 Examination of Security 4-10

4.15 Advice to Holders of Sales Price 4-12

4.16 Sales Proposals Submitted to VA 4-13

4.17 Sale of Property With Continuance of Liability

Under Indemnity Agreement 4-14

4.18 Claims 4-17

4.19 Claims\--Sale of Property With Continuance of Liability 4-22

4.20 Collection of Indebtedness 4-24

vi

October 2, 1995 M26-4

Change 10

[TABLE OF CONTENTS]{.underline}

[APPENDIX]{.underline}

[FIGURE]{.underline} [PAGE]{.underline}

1 Reissuance of Loan Guaranty Certificate App.-1

2 Estoppel Affidavit App.-2

3 Sample Promissory Note with Voluntary Conveyance App.-4

4 Analysis of Account and Claim - Manually Prepared App.-6

5 Analysis of Account and Claim - Guaranteed Loans

(Detailed) App.-7

6 SF 1034, Public Voucher For Purchases And Services

Other Than Personal (Example) App.-8

7 FL 4-475, First Collection Letter to Veteran on Loan

Guaranty Debt App.-9

8 FL 4-476, First Collection Letter to Veteran on

Direct Loan Debt App.-10

\[9 Suggested Instructions to Servicers on Completion of Buydowns
App.-13\]

vii