I

103D CONGRESS

1ST SESSION H. R. 2331

To amend title 38, United States Code, to clarify the rights of veterans

with regard to procedures for housing loans upon default, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

JUNE 8, 1993

Mr. EVANS introduced the following bill; which was referred to the Committee

on Veterans’ Affairs

A BILL

To amend title 38, United States Code, to clarify the rights

of veterans with regard to procedures for housing loans

upon default, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. PROCEDURES ON DEFAULT OF HOUSING

4 LOANS.

5 (a) IN GENERAL.—Paragraph (2) of section 3732(a)

6 of title 38, United States Code, is amended to read as

7 follows:

8 ‘‘(2)(A) Before suit or foreclosure the holder of the

9 obligation shall notify the Secretary of the default. Before
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1 the holder carries out a liquidation sale of real property

2 securing a defaulted loan, the Secretary within 60 days

3 after notification of default may, at the Secretary’s option,

4 pay the holder of the obligation the unpaid balance of the

5 obligation plus accrued interest and reimburse the holder

6 for such advances, costs, and attorney fees as the Sec7 retary finds were properly and reasonably incurred in con8 nection with the default and receive an assignment of the

9 loan and security. Nothing in this section shall preclude

10 any forebearance for the benefit of the mortgagor as may

11 be agreed upon by the parties to the loan and approved

12 by the Secretary.

13 ‘‘(B) Within 10 days after receiving a notice of de14 fault pursuant to paragraph (1) of this subsection, the

15 Secretary shall notify the mortgagor that the Secretary

16 may purchase the loan from the holder. The notification

17 shall specify—

18 ‘‘(i) that if the Secretary purchases the loan,

19 the Secretary—

20 ‘‘(I) has the authority to modify the loan

21 instruments by temporarily or permanently low22 ering the interest rate or by extending or

23 reamortizing the loan; and
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1 ‘‘(II) may grant forbearance of interest or

2 principal or both for a period of not more than

3 12 months;

4 ‘‘(ii) that if the mortgagor wants the Secretary

5 to purchase the loan, the mortgagor must submit a

6 written request to the Secretary within 20 days of

7 receipt of the Secretary’s notification; and

8 ‘‘(iii) the consequences to the mortgagor if the

9 Secretary purchases the loan.

10 ‘‘(C) Upon receiving a request from the mortgagor

11 to purchase the loan pursuant to subparagraph (B) of this

12 paragraph, the Secretary, for the purpose of avoiding fore13 closure, may purchase the loan in accordance with sub14 paragraph (A). The Secretary shall purchase the loan

15 from the holder of the obligation if—

16 ‘‘(i) the default was caused by circumstances

17 beyond the control of the mortgagor and rendered

18 the mortgagor temporarily unable to correct a mort19 gage delinquency and to resume full mortgage pay20 ments; and

21 ‘‘(ii) it is determined that—

22 ‘‘(I) the holder is unwilling to grant fur23 ther forbearance;

24 ‘‘(II) the mortgagor desires to retain and

25 occupy the property;
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1 ‘‘(III) the mortgagor has maintained the

2 property in good condition or, if major repairs

3 are required, such repairs are due to cir4 cumstances which were beyond the mortgagor’s

5 control;

6 ‘‘(IV) the estimated net value of the prop7 erty exceeds the unguaranteed portion of the

8 loan; and

9 ‘‘(V) there is a reasonable prospect that

10 the mortgagor will be able to resume mortgage

11 payments within 12 months after the Secretary

12 purchases the loan.

13 ‘‘(D) The Secretary may provide assistance, under

14 such terms and conditions as the Secretary may provide,

15 to a mortgagor whose loan has been purchased under the

16 provisions of subparagraph (C) of this paragraph by—

17 ‘‘(i) modifying the loan instruments to lower the

18 interest rate or to extend or to reamortize the loan;

19 and

20 ‘‘(ii) granting forbearance of interest or prin21 cipal or both for a period of not more than 12

22 months.

23 ‘‘(E) If the Secretary decides not to purchase the

24 loan—
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1 ‘‘(i) the Secretary shall notify the mortgagor of

2 the decision and its basis within 30 days after re3 ceiving a written request from the mortgagor asking

4 the Secretary to purchase the loan pursuant to sub5 paragraph (C) of this paragraph; and

6 ‘‘(ii) if the mortgagor is a veteran and used the

7 veteran’s entitlement under section 3702 to obtain

8 the loan or substituted entitlement as described in

9 section 3702(b)(2) to purchase real property secur10 ing a loan guaranteed under this chapter, notice

11 under clause (i) shall include notice of the right of

12 appeal.

13 ‘‘(F) The Secretary shall obtain and hold in safekeep14 ing a quit claim deed from the mortgagor to the Secretary

15 for the real property securing the loan after the loan is

16 purchased from the loan holder and before the Secretary

17 makes any modification to the loan instruments or grants

18 any forbearance. If the mortgagor brings the loan current

19 and keeps the loan current for 12 consecutive months, the

20 unrecorded quit claim deed shall be returned to the mort21 gagor. If, exclusive of any period of forbearance, the loan

22 becomes 6 months delinquent, the Secretary may record

23 the quit claim deed and acquire the property securing the

24 loan without incurring substantial delays and foreclosure

25 expenses. Nothing in this section shall preclude the Sec-
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1 retary from initiating foreclosure before the loan becomes

2 6 months delinquent if the Secretary believes it is in the

3 best interest of the United States to do so.

4 ‘‘(G) For the purposes of sections 3720(e) and (h),

5 loans purchased pursuant to subparagraph (C) that are

6 not in default and that have not been in default for at

7 least 12 consecutive months shall be included in pools of

8 mortgage loans with respect to which certificates or other

9 securities are issued or guaranteed.’’.

10 (b) PERSONNEL.—Section 3732(a)(4) of title 38,

11 United States Code, is amended—

12 (1) by striking out subparagraph (B); and

13 (2) in paragraph (4) (as amended by paragraph

14 (1) of this subsection), by striking out ‘‘(A)’’;

15 (3) in paragraph (4) (as amended by paragraph

16 (2) of this subsection)—

17 (A) by redesignating clauses (i) and (ii) as

18 subparagraphs (A) and (B), respectively; and

19 (B) by redesignating subclauses (I) and

20 (II) as clauses (i) and (ii), respectively.

21 (c) EXTENSION OF PROCEDURE FOR LIQUIDATION

22 SALES.—Subsection (c) section 3732(c) of title 38, United

23 States Code, is amended by striking out paragraph (11).

24 (d) EFFECTIVE DATE.—The amendments made by

25 subsection (a) shall apply to any housing loan guaranteed
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1 under chapter 37 of title 38, United States Code, with

2 respect to which the Secretary of Veterans Affairs receives

3 notice of default after the date of enactment of this Act.

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