Editorial Note on Part 36
Editorial Note: Nomenclature changes to part 36 appear at 61 FR 7217, Feb. 27, 1996, and 86 FR 51275, Sept. 15, 2021.

§ 36.4275 Events constituting default and acceptability of partial payments. ( a ) Except as provided in paragraphs (a)(1), (a)(2) and (a)(3) of this section, the conveyance of or other transfer of title to property by operation of law or otherwise, after the creation of a lien thereon to secure a loan which is guaranteed in whole or in part by the Secretary, shall not constitute an event of default, or acceleration of maturity, elective or otherwise, and shall not of itself terminate or otherwise affect the guaranty. ( 1 ) The Secretary may issue guaranty on loans in which a State, Territorial, or local governmental agency provides assistance to a veteran for the acquisition of a mobile home or lot. Such loans will not be considered ineligible for guaranty if the State, Territorial, or local authority, by virtue of its laws or regulations or by virtue of Federal law, requires the acceleration of maturity of the loan upon the sale or conveyance of the security property to a person ineligible for assistance from such authority.
( 2 ) At the time of application for a loan assisted by a State, Territorial, or local governmental agency, the veteran-applicant must be fully informed and consent in writing to the housing authority restrictions. A copy of the veteran's consent statement must be forwarded with the loan application or the report of a loan processed on the automatic basis.
( 3 ) Any housing loan which is financed under 38 U.S.C. chapter 37 and to which section 3714 of that chapter applies, shall include a provision in the security instrument that the holder may declare the loan immediately due and payable upon transfer of the property securing such loan to any transferee unless the acceptability of the assumption of the loan is established pursuant to section 3714. ( i ) A holder may not exercise its option to accelerate a loan upon: ( A ) The creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property;
( B ) The creation of a purchase money security interest for household appliances;
( C ) A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
( D ) The granting of a leasehold interest of three years or less not containing an option to purchase;
( E ) A transfer to a relative resulting from the death of a borrower;
( F ) A transfer where the spouse or children of the borrower become joint owners of the property with the borrower;
( G ) A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement by which the spouse of the borrower becomes the sole owner of the property. In such a case the borrower shall have the option of applying directly to the Department of Veterans Affairs regional office of jurisdiction for a release of liability in accordance with § 36.4285 of this part; or
( H ) A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.
( ii ) Any instrument evidencing the loan (*i.e.*, the retail installment contract, promissory note and/or mortgage or deed of trust) shall bear in a conspicuous position in capital letters on the first page of the document in type at least 21 ⁄ 2 times larger in height than the regular type on such page the following warning: “THIS LOAN IS NOT ASSUMABLE WITHOUT THE APPROVAL OF THE DEPARTMENT OF VETERANS AFFAIRS OR ITS AUTHORIZED AGENT.” Due to the difficulty in obtaining some commercial type sizes which are exactly 21 ⁄ 2 times larger in height than other sizes, minor deviations will be permitted based on commercially available type sizes nearest to 21 ⁄ 2 times the size of the print on the document. A similar warning in regular size type must appear on every assumption statement provided on a loan to which this paragraph applies.
( iii ) On any loan to which 38 U.S.C. 3714 applies, the holder may charge a reasonable fee, not to exceed the lesser of ( A ) $300 and the actual cost of any credit report required, or
( B ) any maximum prescribed by applicable state law, for processing an application for assumption and changing its records. A provision authorizing the collection by the holder of this fee shall be contained in the instrument securing the loan. (Authority: 38 U.S.C. 3704 and 3714)
( b ) The inclusion in the guaranteed obligation of a provision contrary to the provisions of this section or § 36.4211 shall not impair the right of the holder to payment of the guaranty provided that: ( 1 ) Default was declared or maturity was accelerated under some other provision of the note, mortgage, or other loan instrument, or
( 2 ) Activation or enforcement of such provision is warranted under § 36.4280, or
( 3 ) The prior approval of the Secretary was obtained.
( c ) If the title to real property or a leasehold interest therein which secures a manufactured home loan guaranteed after December 22, 1970, is restricted against sale or occupancy on the ground of race, color, religion, or national origin, by restrictions created and filed of record by the borrower subsequent to that date, such action, at the election of the holder, shall constitute an event of default entitling the holder to declare the unpaid balance of the loan immediately due and payable.
( d ) The holder of any guaranteed obligation shall have the right, notwithstanding the absence of express provision therefor in the instruments evidencing the indebtedness, to accelerate the maturity of such obligation at any time after the continuance of any default for the period specified in § 36.4280.
( e ) If sufficient funds are tendered to bring a delinquency current at any time prior to repossession or foreclosure of the manufactured home the holder shall be obligated to accept the funds in payment of the delinquency, unless the prior approval of the Secretary is obtained to do otherwise.
( f ) A partial payment is a remittance on a loan in default (as defined in § 36.4202(c)) of any amount less than the full amount due under the terms of the loan and security instruments at the time the remittance is tendered. ( 1 ) Except as provided in paragraph (f)(2) of this section, or upon the express waiver of the Secretary, the holder shall accept any partial payment and either apply it to the obligor's account or identify it with the obligor's account and hold it in a special account pending disposition. When partial payments held for disposition aggregate a full monthly installment, including escrow, they shall be applied to the obligor's account.
( 2 ) A partial payment may be returned to the obligor within 10 calendar days from date of receipt of such payment, with a letter of explanation only if one or more of the following conditions exist: ( i ) The property is wholly or partially tenant-occupied and rental payments are not being remitted to the holder for application to the loan account;
( ii ) The payment is less than one full monthly installment, including escrows and late charge, if applicable, unless the lesser payment amount has been agreed to under a written repayment plan;
( iii ) The payment is less than 50 percent of the total amount then due, unless the lesser payment amount has been agreed to under a written repayment plan;
( iv ) The payment is less than the amount agreed to in a written repayment plan;
( v ) The amount tendered is in the form of a personal check and the holder has previously notified the obligor in writing that only cash or certified remittances are acceptable;
( vi ) A delinquency of any amount has continued for at least 6 months since the account first became delinquent and no written repayment plan has been arranged;
( vii ) Foreclosure and/or repossession has been commenced by the taking of the first action required for foreclosure/repossession under local law;
( viii ) The holder's lien position would be jeopardized by acceptance of the partial payment.
( 3 ) A failure by the holder to comply with the provisions of this paragraph may result in a partial or total loss of guaranty or insurance pursuant to § 36.4286(b), but such failure shall not constitute a defense to any legal action to terminate the loan.
(Authority: 38 U.S.C. 501, 3703(c), 3712(g))
(Approved by the Office of Management and Budget under control number 2900-0516) [45 FR 31064, May 12, 1980, as amended at 46 FR 51386, Oct. 20, 1981; 55 FR 37474, Sept. 12, 1990]