April 20, 1992 M26-4

[CONTENTS]{.underline}

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

[LIQUIDATION AND CLAIMS]{.underline}

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

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

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April 20, 1992 M26-4

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

[LIQUIDATION AND CLAIMS]{.underline}

[4.01]{.underline} [POLICIES AND PROCEDURES]{.underline}

The policies and procedures with respect to guaranteed loans cited in
chapters 1 through 3 of this manual and M26-3, chapter 2, section II,
will, for the most part, be applicable to manufactured home loans
guaranteed under 38 U.S.C. 3712. It is contemplated, therefore, that
unless stated otherwise, the policies and procedures set forth in the
above-named references, when applicable, will be followed.

[4.02]{.underline} [REQUIRED HAZARD INSURANCE COVERAGE]{.underline}

Under 38 CFR 36.4222, insurance protection on a property securing a
VA-guaranteed manufactured home loan is the holder\'s responsibility.
Failure on the part of the holder to maintain adequate coverage could
result in an adjustment of claim payment under loan guaranty (38 CFR
36.4286(b)(3)) in the event of any loss. The maintenance of physical
damage insurance on a manufactured home unit which provides
comprehensive coverage or so-called \"fire, theft and combined
additional coverage\" and VSI (Vendor\'s Single Interest) coverage for
collision, conversion, embezzlement and secretion in an amount equal to
the insurable value of the manufactured home unit, would meet the
requirements set forth in 38 CFR 36. 4222. While flood insurance is
considered customary coverage and is usually included in a comprehensive
manufactured home policy, it is required by law on any loan where the
security is located in an area identified by HUD (Department of Housing
and Urban Development) as a special flood hazard area. (See also par.
2.01g and M26-3, pars. 2.08 and 2.32e.)

[4.03 HAZARD INSURANCE LOSSES]{.underline}

Since the manufactured home unit is considered a \"package home\"
containing built-in items of equipment, furnishings, accessories, etc.,
which were purchased with the proceeds of the loan, it is incumbent upon
the holder to ensure that adequate insurance coverage is maintained to
cover the equipment, etc., as well as the manufactured home against any
loss. If the borrower has absconded with the security or a portion
thereof, or for other reasons it appears to be impossible to locate and
liquidate the security, VA will look to the holder to recover the loss
from insurance and credit the proceeds derived to the indebtedness.
Failure to maintain VSI coverage or the denial of a VSI claim because of
untimely or improper submission will not relieve the holder of its
responsibilities under 38 CFR 36.4222. It is expected that the insurance
coverage will be sufficient to cover most losses. However, if a total
loss is suffered and the loss proceeds will not be sufficient to cover
the debt, station management should attempt to have the destroyed
manufactured home replaced with a comparable unit.

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M26-4 April 20, 1992

[4.04]{.underline} [RELEASE OR SUBSTITUTION OF SECURITY]{.underline}

Title 38 CFR 36.4277 authorizes a holder to release from its lien any
personal property; i.e., manufactured home unit when the security for
the loan includes built-in items of equipment, furnishings and
accessories which could be removed or replaced, and real property which
does not involve a decrease in value of the security in excess of \$500.
Except with the prior approval of VA, the holder shall not release any
lien on the security unless the consideration received for the release
is commensurate with the fair market value of the property released and
is applied to the indebtedness. (See also M26-3, pars. 2.11 and 2.32i.)

[4.05]{.underline} [RELEASE OF LIABILITY]{.underline}

Release of liability under the provisions of 38 U.S.C. 3713 and 38 CFR
36.4285(e) will be granted the original veteran-borrower upon
application and upon full compliance with the provisions of 38 U.S.C.
3713. (See also M26-3, ch. 2, sec. IV.)

[4.06]{.underline} [NOTICE OF DEFAULT]{.underline}

a\. The holder of a guaranteed manufactured home loan is required to
give notice to VA within 15 days after any debtor is in default by
reason of nonpayment of two full installments (see 38 CFR 36.4280). The
notice will be submitted to the office of jurisdiction on VA Form
26-6850, Notice of Default. Upon receipt of the notice of default, a
review will be made as to its completeness. Appropriate records will be
established in LCS (Liquidation and Claims System) which will be
maintained at the Austin DPC (Data Processing Center).

b\. It will be the responsibility of station management to ensure that a
followup is maintained on each pending defaulted loan, so that no case
is overlooked or neglected and timely action may be taken as
appropriate. A followup to the holder will be made during periods of
forbearance and scheduled liquidations of arrears. This will also apply
to those loans determined to be insolubly delinquent and when VA is on
notice that the guaranteed loan is to be liquidated. VA Form 26-8778,
Request to Lender for Status of Loan Account-LCS, will be prepared
automatically and mailed directly to holders or their servicing agents
by LCS for followup purposes when the diary date established in the
system is reached. The circumstances of each case will dictate when
followup is necessary to learn the status of the case from the holder. A
followup shall be made to the holder within a reasonable interval after
it is likely that the default may have been cured. This is most
important when repayment schedules are involved or when the period of
forbearance has expired, to ensure that such schedules of payments are
being adhered to. (EXAMPLE: A loan is 3 months in arrears and schedule
is made for veteran to pay one and one-half installment payments over
the next 6 months to bring the account current.

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April 20, 1992 M26-4

Followup should be made after the first 30-day period following such
schedule and within 30-day intervals thereafter as necessary.) When the
delinquency in a case reaches four installments in arrears and
termination action has not been instituted by the holder, the case will
be referred to the Chief, Loan Service and Claims Section, for review to
determine what action, if any, is necessary. All cases pending
termination will be kept under close surveillance. A review of these
cases by the Chief, Loan Service and Claims Section, will be made at
appropriately scheduled intervals to prevent any undue delays in
termination on the part of the holder and to take whatever action is
deemed necessary to protect the interests of VA. When it is determined
through servicing reports from the holder or through VA\'s supplemental
servicing that the default is insoluble, and the holder has not
initiated action to terminate the loan, a cutoff date for computation of
the eligible indebtedness and charges will be established under 38 CFR
36.4282(f) in accordance with paragraph 4.11.

[4.07]{.underline} [SUPPLEMENTAL SERVICING BY VA]{.underline}

a\. There will be no fundamental differences in supplemental VA loan
servicing procedures from those in M26-3, chapter 2, section II.
However, because of the rapid depreciation in value of the manufactured
home unit as compared to a conventional home and the high incidence of
abandonment, and in order to minimize losses under the guaranty, it is
important that supplemental servicing begin promptly upon receipt of the
notice of default. The supplemental servicing, as well as appropriate
followups, should continue on each defaulted loan until it has been
cured or it is determined that the default is insoluble. Should
letter-servicing elicit no response, personal contact with the
delinquent borrower may be more effective. Efforts will be made to
contact the borrower by telephone or face-to-face in the office, at his
or her home, or place of employment. The holder should be apprised of
any findings concerning the veteran\'s ability to pay, his or her
willingness to enter into a repayment schedule, the condition of the
property, etc.

b\. Holders shall accept a borrower\'s tender of a partial payment on a
loan in default unless one or more of the specific conditions; i.e.,
exceptions, defined in 38 CFR 36.4275(f), apply. The provisions of 38
CFR 36.4275(f) are applicable to all VA manufactured home loans, whether
the loans were originated prior to the date the regulation became
effective, to the extent that no legal rights vested thereunder are
impaired. Accordingly, VA expects lenders to apply these provisions to
all VA manufactured home loans equally rather than distinguish between
loans based upon the dates that the instruments were executed. When
there appears to be a legitimate reason to refuse to accept a
borrower\'s tender of a partial payment, and none of the conditions
authorizing return of the payment pertain, the holder may submit a
request for the approval of the Secretary to waive the payment
acceptance requirement of this regulation.

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M26-4 April 20, 1992

Stations will give careful consideration to the facts and circumstances
of each case when a request is made and respond to the holder within 5
workdays from the date the request is received by VA. The loan folder
will be fully documented by memorandum outlining the basis for approving
or disapproving the holder\'s request for waiver.

c\. When it appears that the default may be cured if the property were
transferred into stronger hands by assumption of the loan, every effort
will be made to encourage and obtain the cooperation of the borrower
and/or the holder to this end to avoid termination of the loan. In
appropriate cases, it may be to VA\'s advantage to allow the holder to
advance moneys for past due site rentals under 38 CFR 36.4276(b)(6), as
an inducement to a prospective purchaser to buy the property on a
loan-assumption basis and thereby avoid termination of the loan and
subsequent claim payment. (See par. 2.09.)

d\. When it is apparent that the default is insoluble (e.g., the veteran
refuses to make payments or the unit has been abandoned), the holder
should be advised to repossess the unit or otherwise commence
termination proceedings without delay.

[4.08 REFUNDING UNDER 38 CFR 36.4281]{.underline}

When it is determined feasible to do so, a loan may be refunded by VA
under the provisions of 38 CFR 36.4281. However, notice of refunding
shall not be given until the loan folder, together with all the facts
pertinent to the decision, has been referred to Central Office (261) for
prior approval. The criteria outlined in M26-3, paragraph 2.38, will be
followed, except that no manufactured home loan will be refunded for
liquidation purposes.

[4.09 VOLUNTARY CONVEYANCE]{.underline}

a\. [Sale After Repossession]{.underline}. Generally, there will be no
appreciable expense involved in terminating a debtor\'s rights in a
manufactured home by repossession when local law does not require a
public sale after repossession. Therefore, a transfer of the security by
voluntary conveyance would not usually be accepted since it would offer
no appreciable savings. However, when the security for the loan involves
a manufactured home, combination manufactured home and realty or realty
only, and a public sale is required to terminate the debtor\'s rights in
the property, consideration may be given to a transfer of the property
by voluntary conveyance, if the circumstances in the case warrant, and
if the method of terminating the loan would be in the best interest of
the Government.

b\. [Approval of Voluntary Conveyance and Advice to Holder]{.underline}.
If VA consents to a voluntary conveyance of the security pursuant to 38
CFR 36.4283(c), the advice to the holder will be by letter which should
be forwarded by certified mail with return receipt requested.

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April 20, 1992 M26-4

The letter to the holder shall confirm or specify the consideration
(full or partial release of personal liability, etc.), if any, for such
conveyance; and also advise the holder to assure that the conveyance is
legally appropriate and conforms to local laws, and to comply with the
requirements and provisions in 38 CFR 36.4283(f) and (h). VA will not
specify an amount, in any case, as a consideration or credit to the
indebtedness for the voluntary conveyance. Upon acquisition, the holder
shall notify VA of the date of acquisition (i.e., acceptance of title or
deed) of the security and will continue its custody of the property and
resell the property in accordance with 38 CFR 36.4283(f). Any claim
under the guaranty will reflect the amount received from the sale of the
property.

[4.10 TERMINATION OF DEBTOR\'S RIGHTS IN PROPERTY]{.underline}

a\. VA Form 26-6850a, Notice of Default and Intention to Foreclose, or
VA Form 26‑6851, Notice of Intention to Foreclose, will be used by
holders to notify VA of the intention to foreclose or repossess the
security as prescribed under 38 CFR 36.4280(e). It should be noted that
the holder of the obligation may take the contemplated action after the
expiration of 30 days. Further, the holder may also elect the legal
action it desires to pursue, even though the personal liability of the
obligors is thus released, unless contrary instructions are issued
within 15 days following receipt of notice of the action elected (38 CFR
36.4277(e)(2)). Stations must maintain a close followup with the holder
to preclude any undue delay in termination. When a holder gives notice
of intention to foreclose or repossess, and the foreclosure or
repossession action is stopped but the default is not cured, no further
notice of intention to foreclosure need be given but the holder must
furnish copies of all procedural papers as required by 38 CFR 36.4282 if
foreclosure or repossession action is again instituted. If, however, the
default is cured, the holder must furnish the notice prescribed by 38
CFR 36.4280(e) before any legal action is instituted following a
subsequent default.

b\. [Advice to Holder]{.underline}. When the property has been abandoned
or is otherwise subjected to depreciation and waste, the holder may
begin loan termination immediately without VA prior approval. If the
holder nevertheless requests VA prior approval, a waiver of the 30-day
period specified in 38 CFR 36.4280(e) should be granted. Otherwise, no
waiver should be granted until all the facts and circumstances in the
case have been obtained and a determination made that such action is
advisable. Consideration will be given to all the facts in the case,
including the loan service report, if any, to determine whether any
action will be taken to forestall foreclosure or repossession
proceedings. All advice to the holder relating to the application of
specific provisions of the regulations will be in writing over the
signature of a VA official authorized to act for the Secretary under 38
CFR 36.4221, and so written that no doubt will be left in the mind of
the holder as to the authorization granted or as to the official
requirements.

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M26-4 April 20, 1992

[4.11 APPLICATION OF 38 CFR 36.4282(f)]{.underline}

It is VA\'s policy to encourage holders to extend every reasonable
indulgence to worthy borrowers who are in temporary difficulty. However,
when it is evident that the default is insoluble, every effort should be
made to see that the security is liquidated promptly with a view to
minimizing the loss in the case. Accordingly, when it is determined
through servicing reports from the holder or through VA\'s supplemental
servicing that the default is insoluble, and the holder has not
initiated action to terminate the loan, a cutoff date for computation of
the eligible indebtedness and charges will be established under 38 CFR
36.4282(f). Any manufactured home loan default of five or more
installments due and unpaid will be considered insoluble unless the
servicing history as shown in VA records indicates a repayment plan is
being maintained or there is a specific reason for the extension of
additional forbearance. The cutoff date will be based on the length of
time normally required to complete repossession or other acquisition. It
will be calculated as to the date repossession should be completed if
the holder initiated appropriate action within 30 days of the date of
the letter of advice. If a bankruptcy court has stayed termination
action, calculation of the cutoff date should include a reasonable
period of additional time for the holder to take prompt action to have
the stay removed. The fact that 38 CFR 36.4282(f) is invoked will not
affect any accrued interest claimed by the holder for the period
subsequent to the date of repossession, or other acquisition to the date
of resale but not to exceed 60 days.

[4.12 APPLICATION OF 38 CFR 36.4283]{.underline}

a\. The current reasonable value of the property will be determined in
accordance with paragraph 4.14. Likewise, the total outstanding
indebtedness against the property and other information pertinent to
consideration of the liquidation procedures to be followed, will be
obtained. FL 26-567 may be used to obtain the information on the status
of the loan account. The current reasonable value of the security will,
in the main, govern the action to be taken by VA with respect to the
liquidation of the security for the guaranteed manufactured home loan.
However, consideration must be given to all the factors and
circumstances in a particular case prior to final determination of the
action taken.

b\. VA Form 26-6713, Summary of Basis for Liquidation Procedure, will be
prepared when the security for the guaranteed loan is being liquidated
at public sale or by voluntary conveyance. This form need not be
prepared nor must the status of the loan account (FL 26-567) be obtained
when no legal action or sale is required to terminate the debtor\'s
rights in the property following repossession.

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April 20, 1992 M26-4

[4.13 FORECLOSURE OR OTHER LIQUIDATION OF PROPERTY BY
HOLDER]{.underline}

a\. [Repossession of Security]{.underline}. It is contemplated that in
the majority of cases involving guaranteed manufactured home loans in
which the security for the loan involves a manufactured home unit only,
that the security instruments will provide for the repossession of the
security property; and termination of the debtor\'s rights in the
property will be accomplished without requiring a judicial or statutory
sale or other public sale under power of sale, unless such action is
required by local or State laws. If the holder acquired a property by
repossession, VA must be notified no later than 10 days after
repossession of the property (38 CFR 36.4282(g)). Accordingly, if no
public sale is required to terminate the debtor\'s rights in the
property, the holder will proceed to sell the property as required in 38
CFR 36.4283(f). On the other hand, if a foreclosure or other public sale
is required, the holder will notify VA of the sale as required under 38
CFR 36.4282.

b\. [Specifying an Amount.]{.underline} When a public sale is required,
an amount will be specified (38 CFR 36.4283(a)(1)) for a property
securing a guaranteed manufactured home loan unless there is no
reasonable likelihood that there would be a salvageable value; or the
value of the property is such that a resale of the security for the loan
would not result in a recovery of any portion of the maximum claim
payable. Since the holder will account to VA upon resale of the
security, upset prices should be established in doubtful cases. While
there are no separate provisions in the regulations governing the
liquidation of combination loans, such loans will be handled in
accordance with regulations that are applicable to realty and
manufactured home units and, when appropriate, an amount will be
specified. One lien may cover both the real property and the
manufactured home, and the loan instrument and/or local law might
provide for the sale of both as a unit. In that event, if an amount is
specified, it would relate to both the real property and the
manufactured home. If there are separate items covering each type of
property, and/or if separate public sales are required, an amount (when
appropriate) will be specified for the real property and another amount
for the manufactured home. When the security for the loan involves both
real estate and a manufactured home, and the manufactured home has been
repossessed but a public sale is required to terminate the debtor\'s
rights in the realty, an amount will be specified (when appropriate) to
cover only the realty portion of the security. After acquisition of the
manufactured home, it will, in most instances, be advantageous to sell
the manufactured home and the lot as a unit. Also, it will be necessary
to make sure that the lot is not acquired by a third party, except when
the bid by the third party is in a sufficient amount to warrant the
removal of the manufactured home and the sale of the manufactured home
separately. In order to accomplish this objective, it may be necessary
to authorize the holder to bid in excess of the value established for
the lot. If the real estate and manufactured home are to be sold
separately, every effort will be made to assure that the manufactured
home is sold prior to the liquidation of the real estate.

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M26-4 April 20, 1992

c\. [Specified Amount-Advice to Holder]{.underline}. (Also see par.
2.18.) Following a determination of the liquidation procedures to be
followed in a particular case, a letter by certified mail with return
receipt requested (preferably) or other advice shall be directed to the
holder, whether or not an amount is specified. Advice as to the amount
specified or of the fact that an amount will not be specified shall be
sent in time to be received by the holder not later than 48 hours before
the date of public sale.

d\. Advice to a holder required under 38 CFR 36.4283 and related
correspondence, will be worded to fit the facts in the particular case
in the light of local law and practice governing the proposed procedure.
Care must be exercised to ensure that the instructions contained in the
advice to the holder are concise, clear and complete so that no doubt
would be raised. Further, it would be misleading to include language
concerning a transfer or conveyance to VA since the holder does not have
the right of election to convey the security, notwithstanding the fact
that the security for the guaranteed manufactured home loan may involve
a combination manufactured home and realty (lot) or realty (lot) only
and may be considered as real property under local law. The notice to
the holder, whether or not an amount is specified, should request the
holder to advise VA of the results of the sale pursuant to the
requirements of 38 CFR 36.4283(a)(4) and (h). The holder will also be
informed that if it acquires the property, it shall retain custody and
resell the property in accordance with the provisions under 38 CFR
36.4283(f).

e\. [No Amount Specified]{.underline}. When a holder is notified that VA
will not specify an amount as a credit to the indebtedness incident to a
sale to liquidate the debtor\'s rights in the property, the holder will
be informed in the letter that it will be required to account to VA for
the liquidation of the security on the basis of its bid at the sale; or
the amount realized from the ultimate resale of the property, whichever
is greater, should the holder acquire the property.

f\. [Specified Amount\--Total Indebtedness Plus Costs]{.underline}. When
the security for the loan involves a manufactured home unit only, and
there is sufficient value to warrant the specifying of an amount equal
to the indebtedness plus costs (see subpar. b above), VA will do so.
This will also apply to a combination loan in which both the
manufactured home unit and the real estate (lot) are being terminated by
foreclosure or otherwise as a unit and to a loan for realty (lot) only.
This should be accomplished by using language similar to that in the
example cited in paragraph 2.18c, except that 38 CFR 36.4283 and
36.4276(b) will be inserted. If the holder should overestimate the
foreclosure costs and thus bid in excess of the total indebtedness, VA
may, in appropriate cases and depending on the circumstances, permit the
holder to resell the property pursuant to the provisions of 38 U.S.C.
3720.

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April 20, 1992 M26-4

The holder would then account to the Secretary upon resale or other
liquidation of the security property on the same basis (38 CFR
36.4283(f)) as would have prevailed had the bid not exceeded the
indebtedness. However, should the holder\'s bid result in the necessity
of paying over to the trustee, sheriff or other official conducting the
sale, an amount for distribution to junior lienholders or to the
mortgagor, the holder will not be reimbursed therefor in the event of
claim payment. When separate sales are required to terminate a
combination loan and the combined value of the security exceeds the
total indebtedness plus costs, a dollar amount will be specified for the
realty portion as set forth in subparagraph b above, and another will be
given for the manufactured home portion.

g\. [Notice from Holder after Repossession or Foreclosure Sale and
Acquisition of Security]{.underline}. The holder is required, pursuant
to 38 CFR 36.4282(g) and 36.4283(a)(4), to notify VA of any repossession
of security property, as well as the results of a foreclosure sale,
respectively, within 10 days after repossession or sale. The holder\'s
advice should provide the date of repossession and, when a foreclosure
sale was involved, the name of the successful bidder and the amount of
the bid. When the holder acquires the property by repossession, public
sale or otherwise, the holder\'s notice should also provide complete
occupancy data, indicate the type of security property acquired when a
combination loan is involved and any other information it may consider
pertinent under the circumstances or which may be required by the
station.

h\. Although VA may have specified a minimum amount under 38 CFR
36.4283(a)(1), the holder nevertheless does not have an option to
transfer the property securing a guaranteed manufactured home loan.

i\. Upon acquisition of the property by the holder at public sale or
otherwise (i.e., by repossession or by voluntary conveyance), the holder
will retain the property for resale in accordance with 38 CFR
36.4283(f). The holder is also required to assume the responsibility or
risk for any loss due to damage or destruction of the property, ordinary
wear and tear excepted, from the date of repossession or acquisition to
the date of resale or other liquidation (38 CFR 36.4283(h)(4)). In
addition, the holder, upon acquisition of the property, will be expected
to cancel the existing hazard insurance as soon as possible and include
credit for the unearned premium refund in its final accounting with the
Secretary. An exception to this requirement would be warranted when the
holder has a prospect for a resale under the continuance of liability
concept outlined in paragraph 4.17.

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M26-4 April 20, 1992

j\. [Liquidation of Security\--No Amount Specified]{.underline}. When VA
does not elect to specify an amount under 38 CFR 36.4283 as a credit to
the indebtedness on account of the value of the security to be sold at a
judicial or statutory sale or other public sale, the holder shall notify
VA of the results of the sale within 10 days after the sale is
completed. If the holder is the successful bidder, it will be required
to credit the indebtedness with the net proceeds of the sale or the
amount realized from the resale of the property, whichever is greater,
in the accounting to VA. An upset price will be established unless there
is no reasonable likelihood that the amount received from the resale of
the property will reduce the amount payable under the claim.

[4.14 EXAMINATION OF SECURITY]{.underline}

a\. [Appraisal]{.underline}. Upon receipt of notice from the holder of
foreclosure sale or that the property has been repossessed or otherwise
acquired, the encumbered property will be examined and the current
resale value determined, preferably by means of a proper

appraisal. Construction and Valuation will assign a fee appraiser and
the holder will order the appraisal directly from the appraiser. The
holder will pay the appraiser\'s fee and will be reimbursed for this
expense in full on the claim under loan guaranty. When submitting
written notification to VA regarding repossession, the holder will
include a copy of VA Form 26-8728, Request for Determination of
Reasonable Value (Used Manufactured Home).

\(1\) [Access]{.underline} [to]{.underline} [Property]{.underline}. VA
will not consider the lender/holder/servicer\'s appraisal request
acceptable unless it provides adequate instructions to the appraiser
regarding arrangements for interior and exterior access to the property.
If the property is occupied, the request must indicate the name and
telephone number of the current or last known occupants. If the property
is vacant, the appraisal request should indicate that keys to the
property have been provided to the appraiser or the request must provide
specific alternative instructions for the appraiser to use in arranging
to gain access to the property, such as the name and telephone number of
a local individual to contact. Appraisers are required to make diligent
efforts to gain access to occupied properties. When properties are
determined to be vacant, the appraiser must gain access and it is the
lender/holder/servicer\'s responsibility to assist the appraiser in
gaining access so that a proper appraisal can be completed. The
appraiser will not complete an appraisal in vacant property cases until
interior access has been made. Resale price advice will not be issued
until an acceptable appraisal has been received. In these cases, VA
liability will be limited through the application of 38 CFR 36.4282(f)
(if liquidation is not already completed through repossession or other
means). In cases when liquidation involves judicial action, 38 CFR
36.4282(f) will be applied as of the originally scheduled date of
liquidation. If the appraisal request involving a vacant property does
not provide adequate instructions for gaining interior access, or the
appraiser determines that a property indicated as occupied has been
vacated, the fee appraiser must contact the requester by telephone to
advise that the appraisal cannot be completed without interior access
and that the requester\'s assistance in gaining access is required.

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April 20, 1992 M26-4

The fee appraiser must also contact Construction and Valuation to advise
of the access problem. The case file will be documented to indicate that
there are access problems, for timeliness purposes, and Construction and
Valuation will formally notify Loan Service and Claims that the
liquidation appraisal may be delayed.

\(2\) [Exceptions]{.underline}. An exception to the requirement for the
lender\'s assistance in providing interior access in vacant property
cases may be made by VA if local law prohibits the lender from gaining
or assisting in gaining access to the property or on a case-by-case
basis when other extenuating circumstances are considered by VA to exist
(e.g., the appraiser considers access to present a legitimate hazard,
the owner\'s personal effects remain in the property and there is a
legitimate concern by the lender of exposure to litigation). When an
exception is made, the appraiser will perform an exterior only appraisal
as described in Manual M26-2, paragraph 2.19d(3). If the copy of VA Form
26‑8728 is not included, Loan Service and Claims will take appropriate
action to assure that the appraisal is ordered.

\(3\) [Telephone Assignment Procedure]{.underline}. Coordination between
Construction and Valuation and Loan Service and Claims is essential in
establishing proper controls for the telephone assignment procedure.
(When the default is insoluble and the borrower has indicated that the
property will soon be vacated, the holder may request appraisal
assignments prior to repossession if the borrower\'s consent is
obtained. Should the borrower attempt to pay the full arrears after the
appraisal is obtained, the holder will include the cost of the appraisal
in the computation of the total amount delinquent.) The holder will
notify Construction and Valuation by telephone immediately after
repossession (or prior to repossession, with the borrower\'s consent,
under the circumstances noted).

\(4\) [Manufactured Home Appraiser]{.underline}. The need for an
appraisal of the security and assignment to a manufactured home
appraiser will be left to the discretion of station management. An
appraisal will be obtained when realty (lot) is involved, unless an
appraisal had been received within 3 months which can be used as a basis
for determining the present value of the realty. When the security for
the loan involves a combination manufactured home and real estate (lot),
they may be appraised as a unit; however, the appraisal report must show
a separate breakdown for each portion of the security.

4-11

M26-4 April 20, 1992

b\. An appraisal may be conducted by staff personnel qualified to make
an evaluation or by a competent manufactured home appraiser. Whenever
feasible, a fee appraiser should not be one who previously appraised the
property or was involved as a dealer, servicer, etc., during the history
of the loan. The appraiser will be furnished with full information
concerning the manufactured home unit and lot, when appropriate; i.e.,
make, model, year, dimensions, serial number, added components shown on
invoice, any other extras and other pertinent information necessary to
make a proper appraisal. Appraisers will prepare VA Form 26-8712,
Manufactured Home Appraisal Report. All appropriate items should be
fully completed including the four estimates of resale value. The
\"REMARKS\" section of the form should list all missing equipment with
estimated replacement costs. The appraiser should also provide a
description of local retail sales market conditions. The appraisal
report should be reviewed and the loan folder should be documented to
explain how the value of the manufactured home was determined.

c\. The holder will be notified if it appears that prompt action must be
taken to protect the security against waste, vandalism or damage by the
elements. If the appraisal discloses missing items or damage to the
unit, this should also be brought to the holder\'s attention in order to
recover these items or to report the loss or damage to the insurance
carrier.

[4.15 ADVICE TO HOLDERS OF SALES PRICE]{.underline}

The value of the security property will be determined as provided in
paragraph 4.14 upon receipt of the notice from the holder that it has
acquired the property (by repossession) or at an earlier date, depending
on the facts in the case. When the value of the security property has
been determined, an analysis will be made to determine whether there is
a reasonable likelihood that a resale of the property for the sales
price(s) to be established would result in a recovery of any portion of
the maximum claim payable in the case. If it is determined that the
resale is likely to result in a recovery of a portion of the maximum
claim, an \"as is\" sales price will be established by the station which
will represent the price that VA will accept for the property without
requiring the holder to obtain VA prior approval. VA will advise the
holder promptly of the acceptable \"as is\" price. The holder will also
be informed that an offer at any other price or on any other terms
(e.g., additional repairs or other expenditures incident to the resale)
must have VA prior approval (see par. 4.16). It is important that the
holder be furnished with a price VA will accept, in appropriate cases,
prior to the manufactured home being offered for sale. If VA delays
until the holder submits a purchase offer to VA for its approval, the
amount of any offer will probably not exceed the unguaranteed portion of
the loan. When the holder is notified of the amount VA will accept for
the sale of a property, it should also be advised to make a concerted
effort to sell the property for an amount not less than that amount
designated by VA.

4-12

April 20, 1992 M26-4

If the holder is not able to do so after exposing the property to the
market for a reasonable period of time, the holder should advise VA and
indicate what price can be obtained for the property. VA will then
determine whether the proposed price is acceptable and advise the holder
accordingly. When the analysis of the case clearly indicates a maximum
claim would be payable, the holder will be advised to sell the security
property for the best price obtainable. The advice to the holder should
also emphasize a resale of the property under the continuance of
liability concept as provided in paragraph 4.17 when there is a
reasonable likelihood that the security may otherwise be sold for less
than the unguaranteed indebtedness. Form Letters 26-647 and 26-648
should be used, respectively, to provide holders with advice in best
price obtainable and minimum resale price cases. In \"best price
obtainable\" cases, the letter providing advice to the holder will be
annotated to report the \"as is\" value of the property as determined by
VA. In every case, a copy of the liquidation appraisal and the related
VA Form Letter 26-565 prepared by the Construction and Valuation Section
will be enclosed with the letter providing advice to the holder.

[4.16]{.underline} [SALES PROPOSALS SUBMITTED TO VA]{.underline}

a\. When VA has specified a minimum amount for property securing a
manufactured home loan which thereafter is acquired by the holder, the
holder, in accordance with 38 CFR 36.4283(f), is required to sell the
property for the best price obtainable within a reasonable time and with
the approval of VA. Likewise, when the veteran voluntarily delivers
custody of the property to the holder or the property is repossessed
without requiring a sale to terminate the debtor\'s rights in the
property, the holder is required to sell the property at the best price
obtainable within a reasonable time and with the approval of VA. Any
sales offer submitted by the holder to VA will be disapproved only when
(1) it is evident that the property has not been properly exposed to the
sales market, (2) the offer as submitted is not considered to be a
reasonable or bona fide offer, and (3) there is reliable evidence that a
substantially better offer should be obtainable. If the offer is at a
price other than that established by VA (see par. 4.15), the holder\'s
notice of a sales offer will be submitted in writing to VA in advance of
the proposed sale date. An analysis will be made of the sales proposal
by station management of the price, terms, conditions and expenses of
the proposed sale. The aforementioned items, together with the current
VA appraised value or market value of the security, will be considered
in determining whether acceptance of the offer will be in the best
interest of VA. An offer will be accepted unless it is the considered
judgment of station management that a better offer is obtainable.

b\. If the holder is unable to resell the property at the established
minimum selling price after reasonable exposure to the market, the
holder may request that VA review the minimum selling price in order to
determine whether it properly represents the retail value of the unit.
If, after the review, it is determined that the price should be reduced,
the holder will be provided with a revised minimum selling price.

4-13

M26-4 April 20, 1992

c\. The holder will not be required to submit a sales offer to VA for
approval when the sales price is equal to or in excess of the
outstanding indebtedness plus costs. However, it will be necessary for
the holder to notify VA of the sale of the property and return VA Form
26-1899, Loan Guaranty Certificate, or other evidence of guaranty to VA
(see M26‑1, par. 6.02).

d\. In all sales, the purchaser will provide his or her own financing.
If the sales proposal is approved, the amount payable by VA in
connection with the guaranteed loan will not exceed the maximum guaranty
liability.

[4.17]{.underline} [SALE OF PROPERTY WITH CONTINUANCE OF LIABILITY
UNDER]{.underline}

[INDEMNITY AGREEMENT]{.underline}

a\. After repossession or other liquidation, it is often in the best
interest of the Government to encourage the holder to finance the resale
of the property to an acceptable purchaser, with VA agreeing to
indemnify the holder to the extent of its remaining liability from the
original loan. By agreeing to this indemnification, VA would, in effect,
be postponing the payment of a maximum claim, or reducing the
Secretary\'s potential liability under the guaranty; or could avoid
payment of a claim liability entirely. The continuance of liability is
to be considered only as a salvage operation to reduce the amount of the
claim payment under loan guaranty. Usually VA will agree to this
contingent liability after repossession or other liquidation when it
appears likely that if the property were resold without continuance of
liability, VA would be required to pay a substantial portion of the
maximum liability on the original loan. A VA official authorized to act
for the Secretary under 38 CFR 36.4221 may (without the approval of
Central Office) effect such an agreement with the holder pursuant to 38
U.S.C. 3720 and 38 CFR 36.4283(f).

b\. Station management should work closely with holders, in appropriate
cases, after repossession or other liquidation of the security, to
effect a resale of the property under the continuance of liability
concept. Before assenting to an agreement, the holder will be apprised
that if the property sells on this basis, it must still comply with VA
regulations as if the original loan had not been terminated. Further,
the term of the new loan may not exceed the maximum term under 38 CFR
36.4204(c)(4) and the interest rate charged to the borrower may not
exceed the maximum rate allowable under 38 CFR 36.4212 as of the date
the new loan is closed. There would be no objection to a lesser maturity
period or lower interest rate.

4-14

April 20, 1992 M26-4

c\. Depending on the circumstances in these types of cases, it may be to
VA\'s advantage to allow the holder to include in the new loan amount
any sales expenses, repair costs, unpaid and accrued interest, taxes,
repossession expenses or liquidation expenses and any other expenses
allowed under 38 CFR 36.4276 to consummate the sale. There also may be
instances when the property is valued at less than the total
indebtedness and a purchaser is willing to buy the property for an
amount less than the total indebtedness. In these cases, it may be
beneficial to VA to agree to pay the holder a claim under the guaranty
for the difference between the indebtedness and the amount the purchaser
has agreed to pay for the property and continue VA\'s liability on the
remaining indebtedness. The limit as to amount of the partial claim
payment will be determined by station management on the basis of the
circumstance in the particular case. Further, this arrangement will not
be permitted unless the purchaser executes a new security agreement and
note, thereby evidencing a separate agreement to repay the contract
obligation and setting forth the purchaser\'s liability to the Secretary
for the amount of any claim paid under VA\'s indemnity agreement with
the holder.

d\. When VA agrees to a sale of the security on terms with a continuance
of liability, the indebtedness will be credited with the proceeds of the
resale and a debt will be established against the veteran-borrower for
any deficiency; i.e., partial claim payment made to the holder. When
there is a subsequent claim payment made to the holder under this
indemnity agreement, no debt will be established against the original
veteran-borrower in connection with the second payment. (See par. 4.19.)

e\. The holder will be required to submit to the office of jurisdiction
all credit information developed: a copy of the sales agreement showing
the terms of the sale; an account statement reflecting the outstanding
indebtedness, including expenditures made or to be made incident to the
resale of the property; and any other pertinent data required by the
station to consider the holder\'s request for approval of the sale and
continuance of liability. Under receipt of the holder\'s request for
approval of the sale of the security with continuance of liability, the
offer and the related data submitted will be reviewed and a
determination will be made as to whether a sale would be in VA\'s best
interest. The holder will be informed promptly of VA\'s decision. If the
sale is approved, the holder will be advised by letter stating the terms
of the agreement; the amount of claim payment, if any; and the amount of
VA\'s continued liability on the loan. The following will be included in
the letter to the holder, as appropriate:

\(1\) [Continuation of Liability\--No Claim Payment Made to
Holder]{.underline}. \"This will evidence the continued liability of the
Secretary of Veterans Affairs on the captioned loan to indemnify you for
percent of the remaining balance of the loan which totals \$
[not]{.underline}

to exceed \$ It should be understood that under this indemnification
agreement you must still comply with VA regulations applicable to the
original loan to the extent and in the same manner as though the
original loan had not been terminated; and that the provisions of loan
guaranty will be applicable to this loan notwithstanding the original
loan on which the guaranty was issued has been terminated.\"

4-15

M26-4 April 20, 1992

\(2\) [Continuation of Liability\--Partial Claim Payment Made to
Holder]{.underline}. \"This will evidence the continued liability of the
Secretary of Veterans Affairs on the captioned loan to indemnity you for
percent of the remaining balance of the loan which totals \$ not to
exceed \$ We have adjusted the amount of the Secretary\'s liability on
the loan since claim payment under the guaranty in the amount of \$ will
be paid shortly. It should be understood that under this indemnification
agreement you must still comply with VA regulations applicable to the
original loan to the extent and in the same manner as though the
original loan had not been terminated; and that the provisions of loan
guaranty will be applicable to this loan notwithstanding the original
loan on which the guaranty was issued has been terminated.\" The holder
should also be advised that it will be required to maintain the original
loan records to support any payment under the indemnification agreement.

f\. When VA\'s liability is to be continued and a claim payment is to be
made to the holder, an appropriate adjustment will be made in the amount
of VA\'s liability (formerly under loan guaranty) that will continue in
effect under the indemnity agreement on the loan. The computation of the
remaining liability will be the amount of guaranty liability as of the
date of claim less the amount of claim that will be paid under the
guaranty. The remainder will be VA\'s liability under the
indemnification agreement on the new loan. The amount of VA\'s liability
under indemnity will decrease or increase, subject to the maximum
liability, pro rata with any decrease or increase in the amount of the
unpaid portion of the new loan.

EXAMPLE: If the original loan was in the amount of \$12,000, the
indebtedness as of the cutoff date for claim computation is \$10,500 and
the total eligible indebtedness including allowable costs is \$l2,5OO.
VA\'s maximum liability would be \$5,250 (50 percent guaranty). If the
holder resold the unit to a purchaser who paid \$500 cash and financed
\$12,000, no claim would be payable under loan guaranty and VA\'s
liability under indemnity would be \$5,250 or 43.75 percent on the new
loan balance of \$12,000. If the holder resold the unit to a purchaser
who paid \$500 cash and financed \$9,500, VA would pay a claim of
\$2,500 (\$12,500 less \$10,000) and VA\'s liability under indemnity
would be \$2,750 or 28.95 percent on the new loan balance of \$9,500.

4-16

April 20, 1992 M26-4

[4.18 CLAIMS]{.underline}

a\. [Submission of Claim]{.underline}. The holder may submit a claim
under loan guaranty, if otherwise proper, pursuant to the provisions of
38 CFR 36.4283(f) or (g), after the ultimate sale or other liquidation
of the security for the guaranteed manufactured home loan. The holder
will use VA Form 26-8629, Manufactured Home Loan Claim Under Loan
Guaranty (Manufactured Home Unit Only); or VA Form 26-8630, Manufactured
Home Loan Claim Under Loan Guaranty-Combination Loan-Manufactured Home
Unit and Lot or Lot Only, whichever is applicable, in filing the claim
and will submit it with the supporting documents required. (See also
par. 4.19.)

\(1\) Upon the ultimate sale or other liquidation of the security, the
holder will submit VA Form 26-8629 or 26-8630 and the claim will be
paid, if appropriate, in the net amount after crediting the proceeds of
the sale, or the maximum amount of the claim payable, whichever is less
(see 38 CFR 36.4283(f) or (g)). A separate statement of final accounting
will not be require since the claim forms provide for the holder to
furnish complete information relating to the liquidation of the security
to establish the amount payable under loan guaranty, if any.

\(2\) When the security is liquidated for an amount equal to or in
excess of the total indebtedness, the holder will not be required to
submit a claim or a final accounting to VA. However, the holder will be
required to forward the guaranty certificate, properly endorsed,
evidencing satisfaction of the indebtedness (see 38 CFR 36.4218).

b\. [Receipt of Holder\'s Claim]{.underline}. Upon receipt of the
holder\'s claim under loan guaranty, an examination will begin with a
thorough review of all papers in the related loan folder and carry
through the claim and the supporting documents to determine whether the
claim is eligible for payment (see par. 2.01c and d). To support the
amount entered on the claim as proceeds of liquidation I a copy of the
new installment sales contract (if sold with financing) or the proceeds
check (if sold for all cash) will be submitted along with the other
supporting documents. If it is determined that all requirements of the
regulations, particularly the paragraphs referred to in 38 CFR 36.4286,
have been met, appropriate coding action will be taken to record the
receipt of the holder\'s claim.

c\. [Computation of Guaranty Liability]{.underline}. VA\'s liability
under the guaranty on a manufactured home loan is governed by the
provisions of 38 CFR 36.4284(a). All of the stated conditions are
applicable, irrespective of whether the event occurred in connection
with the primary or secondary liens involving a combination (real estate
and manufactured home) loan, or when the combination loan is secured by
two separate and distinct liens (i.e., one covering the manufactured
home and another on the real estate); the cutoff date will be based on
that portion of the security terminated (by repossession, foreclosure or
voluntary conveyance) first.

4-17

M26-4 April 20, 1992

For example, the date the first notice of sale is published in a
nonjudicial foreclosure; i.e., public sale, on the manufactured home
portion or real estate portion of the security for the loan, whichever
occurs first, would be the cutoff date for computing VA\'s maximum
liability under the guaranty on a combination loan. In the event the
holder repossessed the manufactured home first and no sale was required
to terminate the debtor\'s rights, but a foreclosure sale was required
to terminate the real estate portion to the security for the loan, the
date of repossession of the manufactured home by the holder would be the
date used for computing VA\'s liability under loan guaranty. The
holder\'s claim under loan guaranty may include allowable advances (38
CFR 36.4276), accrued interest to the applicable cutoff date set forth
in 38 CFR 36.4284(a) at the maximum rate allowable, plus accrued
interest at a rate of 6 percent from the cutoff date to the date of
resale or other liquidation, but not to exceed 60 days. For loans closed
on or after May 8, 1984, accrued interest from the cutoff date to the
date of resale or other liquidation will be payable at 4.75 percent
below the contract rate, but not to exceed 90 days. In computing the
earned interest to be included in a claim, or in computing the amount
necessary to pay off a loan, the actuarial method of computation will be
used. The rule of 78\'s will not be followed since it results in certain
interest calculation inaccuracies which are favorable to the holder
inasmuch as interest is not computed on the declining loan balance. In
no event will the amount paid the holder exceed the amount claimed.

\(1\) Interest earned on the account is generally computed from the date
of loan disbursement. However, when the loan instrument calls for
payment of the face amount of the loan, provides for a specific number
of monthly installment payments and the period from the date of
disbursement to the date of the first payment is in excess of 1 month, a
credit adjustment of interest will be added to the amount of interest
accrued only if the interest was collected by the lender or was included
in the sum of all the monthly installment payments required by the loan
instrument.

[EXAMPLE:]{.underline} If a loan was disbursed on June 21, 1990, and the
first payment was due August 1, 1990, the amount of the adjustment of
interest will be computed on the loan amount from June 21, 1990, to July
1, 1990 (1 month prior to the date of the first payment), or 10 days in
this instance, and the amount determined will be added to accrued
interest [only]{.underline} if the amount of the adjustment of interest
was collected by the lender or was included in the sum of all the
monthly installment payments required by the loan instrument. If the
interest was not collected by the lender or was not included in the sum
of all the monthly installment payments required by the loan instrument,
then that interest will be considered as forgone by the lender and will
not be allowed in the claim computation.

4-18

April 20, 1992 M26-4

\(2\) Further, when the loan instrument calls for monthly payments, and
the period from the date of disbursement to the date of the first
payment is in excess of 1 month, a credit adjustment of interest will be
added to the amount of interest determined to have accrued only if the
interest was collected by the lender or was included in the total add-on
finance charge in the loan instrument.

[EXAMPLE:]{.underline} If a loan was disbursed May 19, 1990, and the
first payment was due July 1, 1990, the amount of the adjustment of
interest will be computed on the loan amount from May 19, 1990, to June
1, 1990 (1 month prior to the date of the first payment), 12 days in
this instance, and the amount determined will be added to accrued
interest only if the amount of the adjustment of interest was collected
by the lender or was included in the add-on finance charge as indicated
above. If the interest was not collected by the lender or was not
included in the add-on finance charge in the loan instruments, then the
interest will be considered as forgone by the lender and will not be
allowed in the claim computation.

d\. [Adjustments]{.underline}. If, for some reason, it is concluded that
the holder\'s claim under loan guaranty should not be paid or that the
amount payable should be adjusted under 38 CFR 36.4286 because of the
holder\' s failure to comply with \'VA regulations, the entire file,
together with the conclusion and recommendation of station management,
will be forwarded to Central Office (261). Likewise, if after payment of
the holder\'s claim under loan guaranty, it is concluded that there has
been a violation of VA regulations and that the claim was paid
improperly, the entire file, together with the conclusion and
recommendation of the station management, will be sent to Central Office
(261) for review prior to making any demand upon the holder for a
refund.

e\. [Analysis of Claim]{.underline}. If the claim is proper (38 CFR
36.4283(f) or (g)), is filed in good order and supported by the
originals or by properly certified copies of the documents required by
the instructions in the claim form, a complete analysis of the holder\'s
claim will be made in accordance with established procedures (see pars.
3.01 and 3.02). The analysis will be prepared in duplicate by one person
and checked by another. If, after the analysis is completed, the
holder\'s claim is found to be correct and otherwise eligible, it will
be processed promptly for payment. The analysis will be used as a
voucher in lieu of SF 1034, Public Voucher for Purchases and Services
Other Than Personnel (see pars. 3.01 and 3.06). The completed voucher or
the original analysis, properly certified and signed by authorized Loan
Guaranty Division personnel, will be forwarded to the Finance activity
for payment. The claim payment in all cases will be paid from the Loan
Guaranty Revolving Fund 36X4025.

4-19

M26-4 April 20, 1992

f\. [Maximum Allowable Fees and Charges]{.underline}

\(1\) The regulations, in addition to specifying the maximum dollar
amount permissible as attorneys\' and trustees\' commissions, require
that the charges be reasonable. The advice of District Counsel should be
obtained with respect to the reasonableness of any charge. The
regulations also provide that the holder may include in the accounting,
in addition to the expenses or advances set forth under 38 CFR 36.4276,
expenditures for repairs that were reasonably necessary to properly
maintain or refurbish the security property, not to exceed \$400 unless
prior VA approval was obtained (38 CFR 36.4283(h)). In the absence of a
satisfactory explanation of the charges included in the claim, the
holder will be required to furnish a complete breakdown and to submit
the original or certified copies of invoices and receipts, if available,
which show that the amounts were paid. The holder should also furnish a
written opinion on the reasonableness of the expenses. Late charges must
be collected from the borrower as such and may not be included in a
claim under the guaranty or in any accounting with VA.

\(2\) Repairs over \$400 performed without VA approval are allowed if
the repairs result in a resale price that exceeds VA\'s specified resale
price. Example: VA specified sales price is \$26,000. Holder claims
\$2,000 in repairs (done without VA approval). if \$1,600 is recouped on
resale, for a price of \$27,600 or more, cost of repairs should be
allowed.

\(3\) When the holder decides to market the property \"onsite,\" costs
otherwise denied, such as lot rent after repossession, are allowable if
the claim does not exceed the amount that would be payable if the home
had been transported to the dealer\'s lot. Leaving the home onsite may
be less expensive than repossession costs or may increase the resale
price.

\(4\) Any costs or advances claimed which appear excessive or which
might otherwise be denied may be allowed if the costs contributed to an
increased sales price on a dollar-for-dollar basis. Examples of the
costs are transportation to a better selling area or an excessive sales
commission. At least biennially, the average sales commission and other
repossession costs should be determined for use as guidelines for these
purposes.

g\. [Proceeds of Hazard Insurance and Premium Refunds]{.underline}. If,
during the life of the loan, there were interim hazard insurance
proceeds resulting from fire loss, etc., the amounts must be credited to
the indebtedness before computing the amount of claim if such proceeds
were received before the applicable cutoff date. Likewise, any unearned
premium refunds received by the holder from the cancellation of hazard
insurance policies on properties securing guaranteed manufactured home
loans, will be credited to the loan indebtedness and included in the
holder\'s final accounting with VA.

4-20

April 9, 1993 M26-4

Change 4

However, when a total loss or a substantial loss in which the property
is not to be rehabilitated, and the insurance proceeds are not
sufficient to pay off the loan balance, the holder may establish a
cutoff date by filing a claim or repossessing the remaining security and
treating the insurance proceeds received after the date as though they
were liquidated proceeds from the sale of the security.

h\. [Claim Payment Notification to Holder]{.underline}. Form Letter
26-641 will be sent to the holder advising of the amount it may expect
to receive directly from the Department of Treasury. The holder should
be reminded of the responsibility for cancellation of the evidence of
guaranty under 38 CFR 36 4218, but follow-up to assure compliance need
not be maintained. A copy of the letter will be placed in the loan
folder and a copy will be forwarded to the Finance activity along with
the original voucher (see par. 3.08). A copy of LCS\'s Analysis of
Account and Claim will be enclosed with the letter to the holder. If the
holder finds LCS\'s computation of unpaid accrued interest unacceptable,
the holder\'s ledgers will be examined and a detailed analysis of
account and claim will be prepared (see fig. 5).

i\. [Optional Early Claim Procedure]{.underline}. Holders may choose to
file claims upon receipt of VA\'s minimum resale price, prior to actual
resale of the property. Election of this method will be presumed
whenever a claim is received within 6 months of the loan termination and
the security has not been resold. If 6 or more months have elapsed since
loan termination, the claim will be processed under the provisions of 38
CFR 36.4283(g); i.e., additional interest and expenses subsequent to
loan termination may be included in the eligible indebtedness for
purposes of claim computation to the extent specified in 38 CFR
36.4283(g)(1).

\(1\) Under the early claim procedure, the \"gross proceeds of
liquidation\" for purposes of claim computation will be the minimum
resale price specified by VA. If no minimum resale price is specified,
the current market value \"as is\" of the security will be considered as
proceeds of liquidation for purposes of filing and computing a claim
under this procedure. Accordingly, the market value will be shown on the
resale price advice letter in \"best price obtainable\" cases.

\(2\) The eligible indebtedness for purposes of claim computation will
not include interest after loan termination or costs associated with
resale of the property (e.g., sales commission, repairs, lot rent for
periods following termination, property preservation costs), except for
those property preservation or repair costs incurred prior to the
completion of the liquidation appraisal. Costs incurred prior to the
completion of the liquidation appraisal may be allowed in the claim to
the extent that they contributed to the market value of the property as
indicated in the reviewed liquidation appraisal (but not to exceed the
actual cost of the expense). For purposes of claim computation under
this method, transportation expense will be considered a cost of loan
termination rather than resale, and allowed accordingly.

4-21

M26-4 April 9, 1993

Change 4

\(3\) Claim adjustments for failure to report the default timely,
failure to obtain insurance settlements for furnishings and/or
appliances missing from the home at termination and other insured
losses, remain applicable under this optional procedure.

\(4\) In order to track these cases and to satisfy budgetary needs,
stations will maintain a log which lists each case in which the optional
method is used. The log will show for each case the VA loan number and
net claim amount. It will be maintained on a monthly basis and a copy of
each month\'s log will be sent to Central Office (261) by the 10th
workday of the following month. Negative reports are not required.
Reports Control Symbol 20-0836 is assigned to this report. A copy of the
report will be maintained by the station (RCS VB-1, part I, item No.
13-091-100).

\[j. [Loan Termination - Security Missing]{.underline}. When VA becomes
aware that the security is missing, while performing supplemental
servicing or by a notice received from the holder of a delinquent GI
loan, the loan holder will be advised to terminate the loan and a cutoff
date under the provisions of 38 CFR 36.4282(f) will be established.

\(1\) If the loan was originated in a location where SIP (Secured
Interest Protection) or VSI (Vendor Single Interest) endorsement is
customary, the holder will be advised to file a claim with the
appropriate insurer prior to submitting a claim to VA under the
guaranty. When analyzing the holder\'s claim, the SIP/VSI loss proceeds
will be a credit to the total indebtedness instead of the resale amount.
However, it will be necessary to adjust the holder\'s claim under
guaranty if it did not obtain the required SIP/VSI endorsement or it
accepted a settlement for an amount which was less than the value of the
property at the cutoff date or at the time the loan was terminated
(whichever was earlier). SIP/VSI adjustments are described in paragraph
2.03c(5).

\(2\) If SIP/VSI endorsements are not customary, the holder may submit
its claim under guaranty once the loan is terminated, and the maximum
claim under guaranty will be payable. However, it will be incumbent upon
the regional office to periodically follow up with the holder for a
final accounting (such follow ups need not be more frequent than every
six months while the holder is attempting to locate and obtain
possession of the security). The holder will be required to inform VA
when it locates, obtains possession of, and liquidates the security. The
loan folder will be reviewed after the security is liquidated to
determine if any portion of the claim previously paid is reimbursable to
VA. If so, the holder will be informed and the veteran-borrower\'s
indebtedness adjusted.

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April 9, 1993 M26-4

Change 4

If the facts in a particular case indicate that the holder\'s claim
under guaranty should be denied or further adjusted, or the proper
course of action is unclear, the instructions contained in paragraph
2.05c should be followed.\]

[4.19 CLAIMS\--SALE OF PROPERTY WITH CONTINUANCE OF
LIABILITY]{.underline}

a\. The initial or partial claim payment made to the holder under the
guaranty when VA agrees to continue liability under an indemnity
agreement pursuant to 38 U.S.C. 3720 (see par. 4.17), will be processed
and vouchered as a claim in accordance with the procedures outlined in
paragraph 4.18. The claim will be submitted on VA Form 26-8629 or
26-8630, as appropriate, and will reflect the total indebtedness as of
the resale date of the property with continuance of liability, proceeds
of the resale and the net claim due the holder; i.e., the amount of the
partial claim payments agreed upon. The claim paid under the guaranty to
the holder will represent an indebtedness due the Government by the
veteran-borrower and collection procedures will be instituted.

b\. [Claims Under Indemnity]{.underline}. If a payment is subsequently
made to the holder in connection with the loan under the continuation of
liability indemnity agreement, it will be processed as a claim under 38
U.S.C. 3720. The holder will be required to submit a certified statement
of account, in duplicate, together with supporting documents (i.e.,
certified copies of instruments evidencing or securing the indebtedness,
copy of instruments of transfer, when appropriate, and copy of ledger
sheets or equivalent). The holder\'s statement of account will be in the
form of a statement containing information and fiscal data similar to
that required on VA Forms 26-8629 and 26-8630, as appropriate, to permit
a determination of the total indebtedness and VA\'s liability under the
continuation of liability indemnity agreement. The holder\'s statement
will be certified as follows, or in language of similar import:

\"The undersigned certifies that the information contained herein is
true and accurate, that this is a correct and valid claim under an
indemnity agreement and that payment has not been received.

Date [Payee (holder\'s name and address)]{.underline}

[Per (signature)]{.underline}

[Title (official) .\"]{.underline}

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April 20, 1992 M26-4

The holder\'s statement of account will be closely examined to assure
that the claim is proper and the information and fiscal data is
complete. An \"Analysis of Account and Claim\" will then be made for use
in supporting the payment and to determine that the amount claimed by
the holder as payable under the continuation of liability indemnity
agreement is correct, and that there are no errors in the holder\'s
method of computation. The amount due the holder may be authorized for
payment by the holder\'s statement of account and the analysis of
account and claim. The following certification over the signature of the
authorized Loan Guaranty Division personnel will be entered on the
analysis: \"The payee is entitled to the payment of \$ under 38 U.S.C.
3720.\" The certified original of the analysis, together with the
original of the holder\'s statement of account, will be forwarded to the
Finance activity for direct payment to the holder, and the duplicate
will be filed in the related loan folder. Disbursement will be made from
the Loan Guaranty Revolving Fund 36X4025. No debt will be established
against the original veteran-borrower in connection with the subsequent
payment made to the holder under the continuation of liability indemnity
agreement. However, an indebtedness will be established against all
other obligors who are legally liable to VA for the deficiency on this
obligation.

c\. [Notice to Finance Activity]{.underline}. Loan Guaranty Division
will identify for the Finance activity all manufactured home claims
under guaranty involving continuation of liability under an indemnity
agreement and all subsequent claim payments made under such indemnity
agreements. This is necessary to establish proper accounting and
statistical records. The following instructions will be applicable:

\(1\) On all claim payments made under loan guaranty with continuation
of liability, both the original and the copy of the analysis of account
and claim will be annotated under the authorized payment legend of the
analysis as follows:

\"Payment under loan guaranty with continuation of liability. Remaining
liability under indemnity is \$(insert amount).\"

\(2\) When no claim is being paid under loan guaranty or in which no
payment is being made under an indemnity agreement but VA\'s liability
is continued under a new indemnity agreement, Finance activity will be
furnished with a memorandum to that effect stating the amount of
remaining liability under indemnity and a copy of the indemnification
agreement sent to the holder. (In LCS, TT 536, fields -KE and -KF will
both be coded, notwithstanding no claim is being paid.)

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M26-4 April 20, 1992

\(3\) When payments are made under indemnity, but the original and the
copy of the analysis of account and claim will be annotated under the
authorized payment legend of the analysis as follows:

\(a\) If the payment is made under the indemnity agreement with another
continuation of liability following a resale:

\"Payment under indemnity with continuation of liability. Remaining
liability under indemnity is \$(insert amount).\"; or

\(b\) If the payment is made under the indemnity agreement but there is
no further continuation of liability:

\"Payment under indemnity. Remaining liability under indemnity is
NONE.\"

[4.20 COLLECTION OF INDEBTEDNESS]{.underline}

Immediately following payment of the claim or when the final accounting
between VA and the holder is completed, VA Form 26-1833 Advice Regarding
Indebtedness of Obligors on Guaranty or Insure Loans, will be prepared
as prescribed in paragraph 3.17h, and will be forwarded to the Finance
activity for collection of the indebtedness of the veteran and other
obligors, if any, to the United States. (Also see pars. 3.13 and 3.17.)

a\. If the security property is being sold at foreclosure sale, and an
amount is specified pursuant to 38 CFR 36.4283(a), the veteran will be
given credit on the indebtedness to the holder for the specified amount,
irrespective of any less amount which is bid at the public sale. When
the subsequent sale under 38 CFR 36.4283(f) nets an amount is excess of
the proceeds of the public sale, the veteran will be given credit for
the larger amount. If a private sale of the property acquired by the
holder is effected pursuant to 38 CFR 36.4283(f), the borrower\'s
indebtedness will be reduced by the consideration received from the sale
and the net indebtedness established at that time.

b\. If separate foreclosure sales were required on a combination loan
and VA specified an amount for the realty portion and another amount was
specified for the manufactured home, the borrower\'s indebtedness will
be credited with the combined total of the specified amounts. When the
subsequent sale under 38 CFR 36.4283(f) nets an amount in excess of this
combined total, the veteran will be given credit for the larger amount.

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November 19, 1992 M26-4

Change 3

c\. When one portion of the combination loan is being terminated by
foreclosure sale and an amount is specified under 38 CFR 36.4283(a), and
both the manufactured home and realty are subsequently sold at a private
sale (38 CFR 36.4283(f)), the borrower will be given credit for the net
amount realized from the later sale, but in no event will the credit be
less than the amount specified on that portion of the property sold at
foreclosure.

d\. If the amount bid at the foreclosure sale exceeds the specified
amount, the credit to the indebtedness will be that amount required to
be credited under local law (e.g., the net sales proceeds, the credit
legally required by the court). When no amount was specified by VA and
the holder purchases the property at the sale, the indebtedness will be
credited with the net proceeds of the sale or the amount realized from
the ultimate sale of the property, whichever is greater.

e\. If the security property was not owned by the original
veteran-borrower at the time of loan termination and the veteran is
indebted to the Government as a result of loan termination and payment
of a claim under loan guaranty, the case will be reviewed prior to
completing VA Form 26-1833 to determine whether the original
veteran-borrower is eligible for release from liability pursuant to 38
U.S.C. 3717(b) and 38 CFR 36.4285(f). The applicable provisions of
M26-3, chapter 2, section V will be considered in making the
determination.

[\[4.21 VETERAN\'S APPEAL PROCEDURES (DUE PROCESS) FOR LOAN]{.underline}

[GUARANTY DEBTS]{.underline}

Veterans who become indebted as a result of claim payments arising from
the liquidation of manufactured home loans are entitled to appeal the
amount and validity of such debts. The due process procedures in
paragraph 3.18 are equally applicable to manufactured home loan debts.\]

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