**§36.4350 Estate of veteran in real property.**

\(a\) The estate in the realty acquired by the veteran, wholly or partly
with the proceeds of a guaranteed or insured loan, or owned by him and
on which construction, or repairs, or alterations or improvements are to
be made, shall be not less than:

\(1\) A fee simple estate therein, legal or equitable; or

\(2\) A leasehold estate running or renewable at the option of the
lessee for a period of not less than 14 years from the maturity of the
loan, or to any earlier date at which the fee simple title will vest in
the lessee, which is assignable or transferable, if the same be
subjected to the lien; however, a leasehold estate which is not freely
assignable and transferable will be considered an acceptable estate if
it is determined by the Under Secretary for Benefits, or the Director,
Loan Guaranty Service, (i) that such type of leasehold is customary in
the area where the property is located, (ii) that a veteran or veterans
will be prejudiced if the requirement for free assignability is adhered
to and, (iii) that the assignability and other provisions applicable to
the leasehold estate are sufficient to protect the interests of the
veteran and the Government and are otherwise acceptable; or

\(3\) A life estate, provided that the remainder and reversionary
interests are subjected to the lien; or

\(4\) A beneficial interest in a revocable Family Living Trust that
ensures that the veteran, or veteran and spouse, have an equitable life
estate, provided the lien attaches to any remainder interest and the
trust arrangement is valid under State law.

The title to such estate shall be such as is acceptable to informed
buyers, title companies, and attorneys, generally, in the community in
which the property is situated, except as modified by paragraph (b) of
this section.

\(b\) Any such property or estate will not fail to comply with the
requirements of paragraph (a) of this section by reason of the
following:

\(1\) Encroachments;

\(2\) Easements;

\(3\) Servitudes;

\(4\) Reservations for water, timber, or subsurface rights;

\(5\) Sale and lease restrictions:

\(i\) Except as to condominiums, the right in any grantor or cotenant in
the chain of title, or a successor of either, to purchase for cash,
which right was established by an instrument recorded prior to December
1, 1976, and by the terms thereof is exercisable only if:

\(A\) An owner elects to sell,

\(B\) The option price is not less than the price at which the then
owner is willing to sell to another, and

\(C\) Exercised within 30 days after notice is mailed by registered mail
to the address of optionee last known to the then owner of the then
owner's election to sell, stating the price and the identity of the
proposed vendee;

\(ii\) A condominium estate established by the filing for record of the
Master Deed, or other enabling document before December 1, 1976 will not
fail to comply with the requirements of paragraph (a) of this section by
reason of:

\(A\) Prohibition against leasing a unit for a period of less than 6
months.

\(B\) The existence of a right of first option to purchase or right to
provide a substitute buyer reserved to the condominium association
provided such option or right is exercisable only if:

*(1)* An owner elects to sell,

*(2)* The option price is not less than the price at which the then
owner is willing to sell to another,

*(3)* The terms and conditions under which the option price is to be
paid are identical to or are not less favorable to the owner than the
terms and conditions under which the owner was willing to sell to the
owner's prospective buyer, and

*(4)* Notice of the association's decision to exercise the option must
be mailed to the owner by registered or certified mail within 30 days
after notice is mailed by registered or certified mail to the address of
the association last known to the owner of the owner's election to sell,
stating the price, terms of sale, and the identity of the proposed
vendee;

\(iii\) Any property subject to a restriction on the owner's right to
convey to any party of the owner's choice, which restriction is
established by a document recorded on or after December 1, 1976, will
not qualify as security for a guaranteed or insured loan. A prohibition
or restriction on leasing an individual unit in a condominium will not
cause the condominium estate to fail to qualify as security for such
loan, provided the restriction is in accordance with §36.4358(c);

\(iv\) Notwithstanding the provisions of paragraphs (b)(5)(i), (ii), and
(iii) of this section, a property shall not be considered ineligible
pursuant to paragraph (a) of this section if:

\(A\) The veteran obtained the property under a State or local political
subdivision program designed to assist low- or moderate-income
purchasers, and as a condition the purchaser must agree to one or more
of the following restrictions:

*(1)* If the property is resold within a time period as established by
local law or ordinance, after the purchaser acquires title, the
purchaser must first offer the property to the government housing
agency, or a low- or moderate-income purchaser designated by such
agency, provided the option to purchase is exercised within 90 days
after notice by the purchaser to the agency of intention to sell;

*(2)* If the property is resold within a time period as established by
local law or ordinance after the purchaser acquires title, a
governmental agency may specify a maximum price which the veteran may
receive for the property upon resale; or

*(3)* Such other restriction approved by the Secretary designed to
insure either that a property acquired under such program again be made
available to low- or moderate-income purchasers, or to prevent a private
purchaser from obtaining a windfall profit on the resale of such
property, while assuring that the purchaser has a reasonable opportunity
to dispose of the property without undue difficulty at a reasonable
price.

The sale price of a property under any of the restrictions of paragraph
(b)(5)(iv)(A) of this section shall not be less than the lowest of the
following: The price designated by the owner as the asking price; the
appraised value of the property; or the original purchase price of the
property, increased by a factor reflecting all or a reasonable portion
of the increased costs of housing or the percentage increase in median
income in the area between the date of original purchase and resale,
plus the reasonable value or actual costs of any capital improvements
made by the owner plus a reasonable real estate commission less the cost
of necessary repairs required to place the property in saleable
condition; or other reasonable formula approved by the Secretary. The
veteran must be fully informed and consent in writing to the housing
restrictions. A copy of the veteran's consent statement must be
forwarded with the application for home loan guaranty or the report of a
home loan processed on the automatic basis; or (Authority: 38 U.S.C.
3703(c))

\(B\) A recorded restriction on title designed to provide housing for
older persons, provided that the restriction is acceptable under the
provisions of the Fair Housing Act, title VIII of the Civil Rights Act
of 1968, as amended by the Fair Housing Amendments Act of 1988, 42
U.S.C. 3601 *et seq.* The veteran must be fully informed and consent in
writing to the restrictions. A copy of the veteran's consent statement
must be forwarded with the application for home loan guaranty or the
report of a home loan processed on the automatic basis; (Authority: 38
U.S.C. 501(a), 3703(c)(1))

\(6\) Building and use restrictions whether or not enforceable by a
reverter clause if there has been no breach of the conditions affording
a right to an exercise of the reverter;

\(7\) Any other covenant, condition, restriction, or limitation approved
by the Secretary in the particular case. Such approval shall be a
condition precedent to the guaranty or insurance of the loan;

*Provided,* That the limitations on the quantum or quality of the estate
or property that are indicated in this paragraph, insofar as they may
materially affect the value of the property for the purpose for which it
is used, are taken into account in the appraisal of reasonable value
required by 38 U.S.C. chapter 37.

\(c\) The following limitations on the quantum or quality of the estate
or property shall be deemed for the purposes of paragraph (b) of this
section to have been taken into account in the appraisal of residential
property and determined by the Secretary as not materially affecting the
reasonable value of such property:

\(1\) *Building or use restrictions.* Provided, (i) no violation exists,
(ii) the proposed use by a veteran does not presage a violation of a
condition affording a right of reverter, and (iii) any right of future
modification contained in the building or use restrictions is not
exercisable, by its own terms, until at least 10 years following the
date of the loan.

\(2\) *Violations of racial and creed restrictions.* Violations 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.

\(3\) *Violations of building or use restrictions of record.* Violations
of building or use restrictions of record which have existed for more
than 1 year, are not the subject of pending or threatened litigation,
and which do not provide for a reversion or termination of title, or
condemnation by municipal authorities, or, a lien for liquidated damages
which may be superior to the lien of the guaranteed or insured mortgage.

\(4\) *Easements.*

\(i\) Easements for public utilities along one or more of the property
lines and easements for drainage or irrigation ditches, provided the
exercise of the rights thereof do not interfere with the use of any of
the buildings or improvements located on the subject property.

\(ii\) Mutual easements for joint driveways located partly on the
subject property and partly on adjoining property, provided the
agreement is recorded in the public records.

\(iii\) Easements for underground conduits which are in place and which
do not extend under any buildings in the subject property.

\(5\) *Encroachments.*

\(i\) On the subject property by improvements on the adjoining property
where such encroachments do not exceed 1 foot within the subject
boundaries, provided such encroachments do not touch any buildings or
interfere with the use or enjoyment of any building or improvement on
the subject property.

\(ii\) By hedges or removable fences belonging to subject or adjoining
property.

\(iii\) Not exceeding 1 foot on adjoining property by driveways
belonging to subject property, provided there exists a clearance of at
least 8 feet between the buildings on the subject property and the
property line affected by the encroachment.

\(6\) *Variations of lot lines.* Variations between the length of the
subject property lines as shown on the plot plan or other exhibits
submitted to Department of Veterans Affairs and as shown by the record
or possession lines, provided such variations do not interfere with the
current use of any of the improvements on the subject property and do
not involve a deficiency of more than 2 percent with respect to the
length of the front line or more than 5 percent with respect to the
length of any other line. (Authority: 38 U.S.C. 501(a), 3703(c),
3712(g))

\[15 FR 4550, July 18, 1950, as amended at 24 FR 2656, Apr. 7, 1959; 33
FR 18026, Dec. 4, 1968; 34 FR 11095, July 1, 1969; 41 FR 44039, Oct. 6,
1976; 44 FR 47338, Aug. 13 1979; 45 FR 55720, Aug. 21, 1980; 47 FR
49394, Nov. 1, 1982; 55 FR 25976, June 26 1990; 61 FR 28059, June 4,
1996\]

**Supplement *Highlights* reference**: 15(1)