September 16, 1996 M26-1, Revised

Chapter 11 Evidence of Guaranty

**CONTENTS**

  ------------- -------------------------------------------------------- ----------
  **Section**   **Title**                                                **Page**

                How to Use This Chapter                                  11-ii

  11.01         What is the Purpose of Evidence of Guaranty?             11-1

  11.02         Procedures                                               11-2
  ------------- -------------------------------------------------------- ----------

11-i

M26-1, Revised September 16, 1996

How to Use This Chapter

+------------+---------------------------------------------------------+
| In         | > Use this chapter for:                                 |
| troduction | >                                                       |
|            | > • Understanding what evidence of guaranty means to    |
|            | > the lender and VA                                     |
|            | >                                                       |
|            | > AND                                                   |
|            | >                                                       |
|            | > • Procedures for handling the actual LGC document.    |
|            | >                                                       |
|            | > Procedures for issuing evidence of guaranty are found |
|            | > in this manual in section 6.04, \"Loan Reporting and  |
|            | > Issuance of Evidence of Guaranty.\"                   |
+------------+---------------------------------------------------------+

+------------+-------------------+-------------------------------------+
|            | **Section**       | **Heading**                         |
+------------+-------------------+-------------------------------------+
| **Subjects | **11.01** What is | • When is a Loan that was Closed    |
| in this    | the Purpose of    | Automatically Guaranteed?           |
| Chapter**  | Evidence of       |                                     |
|            | Guaranty?         | • When is a Prior Approval Loan     |
|            |                   | Guaranteed?                         |
|            |                   |                                     |
|            |                   | • What is Evidence of Guaranty?     |
|            |                   |                                     |
|            |                   | • Loss of Guaranty                  |
+------------+-------------------+-------------------------------------+
|            | **11.02**         | > • Issue LGC                       |
|            | Procedures        | >                                   |
|            |                   | > • Store Blank Loan Guaranty       |
|            |                   | > Certificates                      |
|            |                   | >                                   |
|            |                   | > • Issue Duplicate Evidence of     |
|            |                   | > Guaranty as Appropriate           |
|            |                   | >                                   |
|            |                   | > • Correct Errors on Loan Guaranty |
|            |                   | > Certificates                      |
+------------+-------------------+-------------------------------------+

11-ii

September 16, 1996 M26-1, Revised

11.01 What is the Purpose of Evidence of Guaranty?

+------------+---------------------------------------------------------+
| When is a  | > A loan is **automatically** guaranteed by VA **upon   |
| Loan that  | > closing**, prior to issuance of the LGC, provided:    |
| was Closed | >                                                       |
| Aut        | > • The loan was made by a supervised lender            |
| omatically | >                                                       |
| G          | > OR                                                    |
| uaranteed? | >                                                       |
|            | > • The loan was made by a nonsupervised lender with    |
|            | > automatic authority                                   |
|            | >                                                       |
|            | > AND                                                   |
|            | >                                                       |
|            | > • Applicable law and regulations have been complied   |
|            | > with.                                                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| When is a  | > A prior approval loan is also guaranteed by VA upon   |
| Prior      | > closing, prior to issuance of the LGC, provided:      |
| Approval   | >                                                       |
| Loan       | > • The closed loan matches the proposed loan upon      |
| G          | > which the Certificate of Commitment was based         |
| uaranteed? | >                                                       |
|            | > AND                                                   |
|            | >                                                       |
|            | > • Applicable law and regulations have been complied   |
|            | > with.                                                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| What is    | > Evidence of guaranty **IS**:                          |
| Evidence   | >                                                       |
| of         | > VA Form 26-1899, Loan Guaranty Certificate, which     |
| Guaranty?  | > represents tangible proof to the lender that VA\'s    |
|            | > guaranty is given in good faith. It is contingent     |
|            | > upon:                                                 |
|            | >                                                       |
|            | > • The veteran, property and purpose of the loan being |
|            | > eligible                                              |
|            | >                                                       |
|            | > • No fraud or material misrepresentation on the part  |
|            | > of the lender.                                        |
|            | >                                                       |
|            | > Evidence of guaranty **IS NOT**:                      |
|            | >                                                       |
|            | > • The triggering mechanism for when guaranty goes     |
|            | > into effect                                           |
|            | >                                                       |
|            | > OR                                                    |
|            | >                                                       |
|            | > • Valid proof that VA will pay a claim under the      |
|            | > guaranty if it is later discovered that               |
|            |                                                         |
|            | ♦ Forgery, fraud, or material misrepresentation was     |
|            | involved in obtaining evidence of guaranty              |
|            |                                                         |
|            | OR                                                      |
|            |                                                         |
|            | ♦ The loan was ineligible for guaranty.                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| Loss of    | > See the \"What to do with the Review Findings\"       |
| Guaranty   | > heading in section 12.02 of this manual for           |
|            | > instructions on when and how to revoke guaranty.      |
|            | >                                                       |
|            | > Always contact Central Office (264) in cases where    |
|            | > any doubt exists.                                     |
+------------+---------------------------------------------------------+

11-1

> M26-1, Revised September 16, 1996

11.02 Procedures

+------------+---------------------------------------------------------+
| Issue LGC  | > See section 6.04 of this manual.                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| Store      | > Store blank VA Forms 26-1899 under lock in filing     |
| Blank Loan | > equipment of the type described in paragraph 3.05 of  |
| Guaranty   | > M26-3 in a location remote from public access.        |
| Ce         | >                                                       |
| rtificates | > • Limit access to employees authorized to issue       |
|            | > evidence of guaranty to lenders.                      |
|            | >                                                       |
|            | > • Return unused certificates to locked storage at the |
|            | > close of each workday.                                |
|            | >                                                       |
|            | > • Provide samples of the form upon written request    |
|            | > only if they are conspicuously marked \"VOID\" or     |
|            | > \"CANCELED\" on the front and back in letters not     |
|            | > less that 1 inch high                                 |
|            | >                                                       |
|            | > In addition, store any discharge papers submitted by  |
|            | > the veteran in the equipment described above at the   |
|            | > close of each workday until file review is complete.  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| Issue      | > If a lender reports that an original Loan Guaranty    |
| Duplicate  | > Certificate (or endorsed note) has been lost,         |
| Evidence   | > misplaced, or destroyed, and submits a written        |
| of         | > request for duplicate evidence of guaranty:           |
| Guaranty   | >                                                       |
| as         | > • Issue a new LGC or endorsed note.                   |
| A          | >                                                       |
| ppropriate | > • Annotate the loan file as to the date and nature of |
|            | > the action.                                           |
|            | >                                                       |
|            | > • Type \"DUPLICATE\" beneath the title of the VA Form |
|            | > 26-1899 at the time the form is prepared (or by the   |
|            | > endorsement on a duplicate note).                     |
|            | >                                                       |
|            | > • Include in the letter of transmittal to the holder, |
|            | > \"By using this Loan Guaranty Certificate (duplicate  |
|            | > note), you agree to save the Department of Veterans   |
|            | > Affairs harmless from any loss by reason of the       |
|            | > issuance of the duplicate Loan Guaranty Certificate   |
|            | > (duplicate endorsement of guaranty).                  |
|            | >                                                       |
|            | > If a lender reports that the original evidence of     |
|            | > guaranty was never received:                          |
|            | >                                                       |
|            | > • Investigate to try to determine responsibility for  |
|            | > the loss by                                           |
|            |                                                         |
|            | ♦ Checking for evidence that the LGC was issued, and,   |
|            | if so,                                                  |
|            |                                                         |
|            | ♦ Checking whether the LGC may still be on-station,     |
|            | and, if not on-station,                                 |
|            |                                                         |
|            | ♦ Requesting the lender to check all possible locations |
|            | for the LGC.                                            |
+------------+---------------------------------------------------------+

11-2

Continued on next page

September 16, 1996 M26-1, Revised

11.02 Procedures, Continued

  -----------------------------------------------------------------------
  Issue Duplicate Evidence of Guaranty as Appropriate (continued)

  -----------------------------------------------------------------------

+------------+---------------------------------------------------------+
|            | > • If you find that VA is responsible for the loss,    |
|            | > issue new evidence of guaranty (do [not]{.underline}  |
|            | > mark as duplicate - treat as if it is the original    |
|            | > LGC issuance).                                        |
|            |                                                         |
|            | ♦ Verify that all procedures in the \"How to Issue      |
|            | Evidence of Guaranty\" heading in section 6.04 were     |
|            | previously completed. Repeat any procedures that do     |
|            | [not]{.underline} appear to have been completed.        |
|            |                                                         |
|            | ♦ Annotate the loan file as to the date and nature of   |
|            | actions taken.                                          |
|            |                                                         |
|            | > • If you do not determine that VA is responsible for  |
|            | > the loss, issue a new LGC or endorsed note by         |
|            | > following the procedures for replacing a lost,        |
|            | > misplaced, or destroyed LGC.                          |
|            |                                                         |
|            | ♦ Annotate the loan file as to the date and nature of   |
|            | actions taken.                                          |
|            |                                                         |
|            | ♦ If this is a repetitive problem with a particular     |
|            | lender, or there is reason to suspect that the lender   |
|            | lost the LGC through procedural deficiencies or that    |
|            | the lender in fact **has** the original LGC, the Chief  |
|            | of Loan Processing or appropriate level individual will |
|            | contact the lender to attempt resolution of the         |
|            | underlying problem.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| Correct    | > Paragraph 7.04 of the Lender\'s Handbook instructs    |
| Errors on  | > lenders:                                              |
| Loan       | >                                                       |
| Guaranty   | > • Not to submit LGCs with only minor typographical    |
| Ce         | > errors for correction                                 |
| rtificates | >                                                       |
|            | > • On when it is appropriate to submit LGCs to the     |
|            | > station for correction, i.e., the types of errors     |
|            | > serious enough to warrant correction.                 |
|            | >                                                       |
|            | > Issue a corrected LGC to a lender who returns any LGC |
|            | > containing an error for correction.                   |
+------------+---------------------------------------------------------+

11-3