38 U.S.C. § 3732 (VETERANS’ BENEFITS)
§ 3732. Procedure on default
(a)
(1) In the event of default in the payment of any loan guaranteed under this chapter, the holder of the obligation shall notify the Secretary of such default. Upon receipt of such notice, the Secretary may, subject to subsection (c) of this section, pay to such holder the guaranty not in excess of the pro rata portion of the amount originally guaranteed. Except as provided in section 3703(e) of this title, if the Secretary makes such a payment, the Secretary shall be subrogated to the rights of the holder of the obligation to the extent of the amount paid on the guaranty.
(2)
(A) Before suit or foreclosure the holder of the obligation shall notify the Secretary of the default, and within thirty days thereafter the Secretary may, at the Secretary’s option, pay the holder of the obligation the unpaid balance of the obligation plus accrued interest and receive an assignment of the loan and security. Nothing in this section shall preclude any forebearance for the benefit of the veteran as may be agreed upon by the parties to the loan and approved by the Secretary.
(B) In the event that a housing loan guaranteed under this chapter is modified under the authority provided under section 1322(b) of title 11, the Secretary may pay the holder of the obligation the unpaid principal balance of the obligation due, plus accrued interest, as of the date of the filing of the petition under title 11, but only upon the assignment, transfer, and delivery to the Secretary (in a form and manner satisfactory to the Secretary) of all rights, interest, claims, evidence, and records with respect to the housing loan.
(3) The Secretary may establish the date, not later than the date of judgment and decree of foreclosure or sale, upon which accrual of interest or charges shall cease.
(4)
(A) Upon receiving a notice pursuant to paragraph (1) of this subsection, the Secretary shall—
(i) provide the veteran with information and, to the extent feasible, counseling regarding—
(I) alternatives to foreclosure, as appropriate in light of the veteran’s particular circumstances, including possible methods of curing the default, conveyance of the property to the Secretary by means of a deed in lieu of foreclosure, and the actions authorized by paragraph (2) of this subsection; and
(II) what the Department of Veterans Affairs’ and the veteran’s liabilities would be with respect to the loan in the event of foreclosure; and
(ii) advise the veteran regarding the availability of such counseling;
except with respect to loans made by a lender which the Secretary has determined has a demonstrated record of consistently providing timely and accurate information to veterans with respect to such matters.
(B) The Secretary shall, to the extent of the availability of appropriations, ensure that sufficient personnel are available to administer subparagraph (A) of this paragraph effectively and efficiently.
(5) In the event of default in the payment of any loan guaranteed or insured under this chapter in which a partial payment has been tendered by the veteran concerned and refused by the holder, the holder of the obligation shall notify the Secretary as soon as such payment has been refused. The Secretary may require that any such notification include a statement of the circumstances of the default, the amount tendered, the amount of the indebtedness on the date of the tender, and the reasons for the holder’s refusal.
(b) With respect to any loan made under section 3711 which has not been sold as provided in subsection (g) of such section, if the Secretary finds, after there has been a default in the payment of any installment of principal or interest owing on such loan, that the default was due to the fact that the veteran who is obligated under the loan has become unemployed as the result of the closing (in whole or in part) of a Federal installation, the Secretary shall (1) extend the time for curing the default to such time as the Secretary determines is necessary and desirable to enable such veteran to complete payments on such loan, including an extension of time beyond the stated maturity thereof, or (2) modify the terms of such loan for the purpose of changing the amortization provisions thereof by recasting, over the remaining term of the loan, or over such longer period as the Secretary may determine, the total unpaid amount then due with the modification to become effective currently or upon the termination of an agreed-upon extension of the period for curing the default.
(c)
(1) For purposes of this subsection—
(A) The term “defaulted loan” means a loan that is guaranteed under this chapter, that was made for a purpose described in section 3710(a) of this title, and that is in default.
(B) The term “liquidation sale” means a judicial sale or other disposition of real property to liquidate a defaulted loan that is secured by such property.
(C) The term “net value”, with respect to real property, means the amount equal to (i) the fair market value of the property, minus (ii) the total of the amounts which the Secretary estimates the Secretary would incur (if the Secretary were to acquire and dispose of the property) for property taxes, assessments, liens, property maintenance, property improvement, administration, resale (including losses sustained on the resale of the property), and other costs resulting from the acquisition and disposition of the property, excluding any amount attributed to the cost to the Government of borrowing funds.
(D) Except as provided in subparagraph (D) of paragraph (10) of this subsection, the term “total indebtedness”, with respect to a defaulted loan, means the amount equal to the total of (i) the unpaid principal of the loan, (ii) the interest on the loan as of the date applicable under paragraph (10) of this subsection, and (iii) such reasonably necessary and proper charges (as specified in the loan instrument and permitted by regulations prescribed by the Secretary to implement this subsection) associated with liquidation of the loan, including advances for taxes, insurance, and maintenance or repair of the real property securing the loan.
(2)
(A) Except as provided in subparagraph (B) of this paragraph, this subsection applies to any case in which the holder of a defaulted loan undertakes to liquidate the loan by means of a liquidation sale.
(B) This subsection does not apply to a case in which the Secretary proceeds under subsection (a)(2) of this section.
(3)
(A) Before carrying out a liquidation sale of real property securing a defaulted loan, the holder of the loan shall notify the Secretary of the proposed sale. Such notice shall be provided in accordance with regulations prescribed by the Secretary to implement this subsection.
(B) After receiving a notice described in subparagraph (A) of this paragraph, the Secretary shall determine the net value of the property securing the loan and the amount of the total indebtedness under the loan and shall notify the holder of the loan of the determination of such net value.
(4) A case referred to in paragraphs (5), (6), and (7) of this subsection as being described in this paragraph is a case in which the net value of the property securing a defaulted loan exceeds the amount of the total indebtedness under the loan minus the amount guaranteed under this chapter.
(5) In a case described in paragraph (4) of this subsection, if the holder of the defaulted loan acquires the property securing the loan at a liquidation sale for an amount that does not exceed the lesser of the net value of the property or the total indebtedness under the loan—
(A) the holder shall have the option to convey the property to the United States in return for payment by the Secretary of an amount equal to the lesser of such net value or total indebtedness; and
(B) the liability of the United States under the loan guaranty under this chapter shall be limited to the amount of such total indebtedness minus the net value of the property.
(6) In a case described in paragraph (4) of this subsection, if the holder of the defaulted loan does not acquire the property securing the loan at the liquidation sale, the liability of the United States under the loan guaranty under this chapter shall be limited to the amount equal to (A) the amount of such total indebtedness, minus (B) the amount realized by the holder incident to the sale or the net value of the property, whichever is greater.
(7) In a case described in paragraph (4) of this subsection, if the holder of the defaulted loan acquires the property securing the loan at the liquidation sale for an amount that exceeds the lesser of the total indebtedness under the loan or the net value and—
(A)
(i) the amount was the minimum amount for which, under applicable State law, the property was permitted to be sold at the liquidation sale, the holder shall have the option to convey the property to the United States in return for payment by the Secretary of an amount equal to the lesser of the amount for which the holder acquired the property or the total indebtedness under the loan; or
(ii) there was no minimum amount for which the property had to be sold at the liquidation sale under applicable State law, the holder shall have the option to convey the property to the United States in return for payment by the Secretary of an amount equal to the lesser of such net value or total indebtedness; and
(B) the liability of the United States under the loan guaranty under this chapter is as provided in paragraph (6) of this subsection.
(8) If the net value of the property securing a defaulted loan is not greater than the amount of the total indebtedness under the loan minus the amount guaranteed under this chapter—
(A) the Secretary may not accept conveyance of the property from the holder of the loan; and
(B) the liability of the United States under the loan guaranty shall be limited to the amount of the total indebtedness under the loan minus the amount realized by the holder of the loan incident to the sale at a liquidation sale of the property.
(9) In no event may the liability of the United States under a guaranteed loan exceed the amount guaranteed with respect to that loan under section 3703(b) of this title. All determinations under this subsection of net value and total indebtedness shall be made by the Secretary.
(10)
(A) Except as provided in subparagraphs (B) and (C) of this paragraph, the date referred to in paragraph (1)(D)(ii) of this subsection shall be the date of the liquidation sale of the property securing the loan (or such earlier date following the expiration of a reasonable period of time for such sale to occur as the Secretary may specify pursuant to regulations prescribed by the Secretary to implement this subsection).
(B)
(i) Subject to division (ii) of this subparagraph, in any case in which there is a substantial delay in such sale caused by the holder of the loan exercising forebearance at the request of the Secretary, the date referred to in paragraph (1)(D)(ii) of this subsection shall be such date, on or after the date on which forebearance was requested and prior to the date of such sale, as the Secretary specifies pursuant to regulations which the Secretary shall prescribe to implement this paragraph.
(ii) The Secretary may specify a date under subdivision (i) of this subparagraph only if, based on the use of a date so specified for the purposes of such paragraph (1)(D)(ii), the Secretary is authorized, under paragraph (5)(A) or (7)(A) of this subsection, to accept conveyance of the property.
(C) In any case in which there is an excessive delay in such liquidation sale caused—
(i) by the Department of Veterans Affairs (including any delay caused by its failure to provide bidding instructions in a timely fashion); or
(ii) by a voluntary case commenced under title 11, United States Code (relating to bankruptcy);
the date referred to in paragraph (1)(D)(ii) of this subsection shall be a date, earlier than the date of such liquidation sale, which the Secretary specifies pursuant to regulations which the Secretary shall prescribe to implement this paragraph.
(D) For the purpose of determining the liability of the United States under a loan guaranty under paragraphs (5)(B), (6), (7)(B), and (8)(B), the amount of the total indebtedness with respect to such loan guaranty shall include, in any case in which there was an excessive delay caused by the Department of Veterans Affairs in the liquidation sale of the property securing such loan, any interest which had accrued as of the date of such sale and which would not be included, except for this subparagraph, in the calculation of such total indebtedness as a result of the specification of an earlier date under subparagraph (C)(i) of this paragraph.
(11) This subsection shall apply to loans closed before October 1, 2017.
(Pub. L. 85–857, Sept. 2, 1958, 72 Stat. 1212, § 1816(a)–(c); Pub. L. 89–117, title I, § 107(f), Aug. 10, 1965, 79 Stat. 460; Pub. L. 94–324, § 7(17), June 30, 1976, 90 Stat. 722; Pub. L. 98–369, div. B, title V, § 2512(a), July 18, 1984, 98 Stat. 1117; Pub. L. 100–198, §§ 4(a), 5(a), Dec. 21, 1987, 101 Stat. 1316; renumbered § 1832 and amended Pub. L. 100–322, title IV, § 415(b)(1)(A)–(C), (5), May 20, 1988, 102 Stat. 550, 551; Pub. L. 101–237, title III, §§ 304(b), 307–308(b)(1), 313(b)(1), (2), Dec. 18, 1989, 103 Stat. 2073–2075, 2077; Pub. L. 102–54, §§ 1, 3(a), 14(g)(1), June 13, 1991, 105 Stat. 267, 288; renumbered § 3732 and amended Pub. L. 102–83, § 5(a), (c)(1), Aug. 6, 1991, 105 Stat. 406; Pub. L. 103–66, title XII, § 12006(a), Aug. 10, 1993, 107 Stat. 414; Pub. L. 103–446, title IX, § 907, Nov. 2, 1994, 108 Stat. 4677; Pub. L. 105–33, title VIII, § 8013, Aug. 5, 1997, 111 Stat. 664; Pub. L. 106–419, title IV, § 402(c), Nov. 1, 2000, 114 Stat. 1863; Pub. L. 107–103, title IV, § 405(d), Dec. 27, 2001, 115 Stat. 994; Pub. L. 108–183, title IV, § 406, Dec. 16, 2003, 117 Stat. 2666; Pub. L. 109–233, title V, § 503(9), June 15, 2006, 120 Stat. 416; Pub. L. 111–275, title VIII, § 802(a), Oct. 13, 2010, 124 Stat. 2888; Pub. L. 112–191, title II, § 201, Oct. 5, 2012, 126 Stat. 1439; Pub. L. 113–37, § 2(h), Sept. 30, 2013, 127 Stat. 525; Pub. L. 113–175, title III, § 302, Sept. 26, 2014, 128 Stat. 1904; Pub. L. 114–58, title II, § 202, Sept. 30, 2015, 129 Stat. 533; Pub. L. 114–228, title II, § 202, Sept. 29, 2016, 130 Stat. 938.)
heading: Amendments
text: 2016—Subsec. (c)(11). Pub. L. 114–228 substituted “October 1, 2017” for “October 1, 2016”.
2015—Subsec. (c)(11). Pub. L. 114–58 substituted “October 1, 2016” for “October 1, 2015”.
2014—Subsec. (c)(11). Pub. L. 113–175 substituted “October 1, 2015” for “October 1, 2014”.
2013—Subsec. (c)(11). Pub. L. 113–37 substituted “October 1, 2014” for “October 1, 2013”.
2012—Subsec. (c)(11). Pub. L. 112–191 substituted “October 1, 2013” for “October 1, 2012”.
2010—Subsec. (a)(2). Pub. L. 111–275 designated existing provisions as subpar. (A) and added subpar. (B).
2006—Subsec. (c)(10)(D). Pub. L. 109–233 substituted “paragraphs (5)(B), (6), (7)(B), and (8)(B)” for “clause (B) of paragraphs (5), (6), (7), and (8) of this subsection”.
2003—Subsec. (c)(11). Pub. L. 108–183 substituted “October 1, 2012” for “October 1, 2011”.
2001—Subsec. (c)(11). Pub. L. 107–103 substituted “October 1, 2011” for “October 1, 2008”.
2000—Subsec. (c)(11). Pub. L. 106–419 substituted “October 1, 2008” for “October 1, 2002”.
1997—Subsec. (c)(11). Pub. L. 105–33 substituted “October 1, 2002” for “October 1, 1998”.
1994—Subsec. (c)(6). Pub. L. 103–446, § 907(b), struck out “either” after “defaulted loan”, substituted “sale,” for “sale or acquires the property at such sale for an amount that exceeds the lesser of the net value of the property or the total indebtedness under the loan—”, struck out text of subpar. (A) and subpar. (B) designation before “the liability”, and redesignated cls. (i) and (ii) as cls. (A) and (B), respectively. Prior to amendment, subpar. (A) read as follows: “the Secretary may not accept conveyance of the property except as provided in paragraph (7) of this subsection; and”.
Subsec. (c)(7). Pub. L. 103–446, § 907(a)(1), struck out “that was the minimum amount for which, under applicable State law, the property was permitted to be sold at the liquidation sale—” after “net value and” in introductory provisions.
Subsec. (c)(7)(A). Pub. L. 103–446, § 907(a)(2), substituted “(i) the amount was the minimum amount for which, under applicable State law, the property was permitted to be sold at the liquidation sale, the holder shall have the option to convey the property to the United States in return for payment by the Secretary of an amount equal to” for “the Secretary may accept conveyance of the property to the United States for a price not exceeding” and “loan; or” for “loan; and” and added cl. (ii).
Subsec. (c)(7)(B). Pub. L. 103–446, § 907(a)(3), substituted “paragraph (6)” for “paragraph (6)(B)”.
1993—Subsec. (c)(1)(C). Pub. L. 103–66, § 12006(a)(1), inserted “(including losses sustained on the resale of the property)” after “resale”.
Subsec. (c)(11). Pub. L. 103–66, § 12006(a)(2), substituted “shall apply to loans closed before October 1, 1998” for “shall cease to have effect on December 31, 1992”.
1991—Pub. L. 102–83, § 5(a), renumbered section 1832 of this title as this section.
Subsec. (a)(1). Pub. L. 102–83, § 5(c)(1), substituted “3703(e)” for “1803(e)”.
Subsec. (a)(4)(C). Pub. L. 102–54, § 1, struck out subpar. (C) which read as follows: “The authority to carry out this paragraph shall terminate on March 1, 1991.”
Subsec. (b). Pub. L. 102–83, § 5(c)(1), substituted “3711” for “1811”.
Subsec. (c)(1)(A). Pub. L. 102–83, § 5(c)(1), substituted “3710(a)” for “1810(a)”.
Subsec. (c)(9). Pub. L. 102–83, § 5(c)(1), substituted “3703(b)” for “1803(b)”.
Subsec. (c)(11). Pub. L. 102–54, § 3(a), substituted “December 31, 1992” for “October 1, 1991”.
1989—Subsec. (a). Pub. L. 101–237, § 313(b)(1), (2), substituted “Secretary”, “Secretary’s”, and “Department of Veterans Affairs’ ” for “Administrator”, “Administrator’s”, and “Veterans’ Administration’s”, respectively, wherever appearing.
Pub. L. 101–237, § 304(b), substituted “Except as provided in section 1803(e) of this title, if” for “If” in last sentence of par. (1).
Subsec. (a)(5). Pub. L. 101–237, § 307, added par. (5).
Subsecs. (b), (c). Pub. L. 101–237, § 313(b)(1), (2), substituted “Secretary” and “Department of Veterans Affairs” for “Administrator” and “Veterans’ Administration”, respectively, wherever appearing.
Subsec. (c)(1)(C)(ii). Pub. L. 101–237, § 308(a), inserted “, excluding any amount attributed to the cost to the Government of borrowing funds” before period at end.
Subsec. (c)(11). Pub. L. 101–237, § 308(b)(1), substituted “October 1, 1991” for “October 1, 1989”.
1988—Pub. L. 100–322, § 415(b)(1)(C), (5)(A), redesignated section catchline of section 1816 of this title as section catchline of this section and struck out former catchline which read as follows: “Furnishing information to real estate professionals to facilitate the disposition of properties”.
Subsec. (a). Pub. L. 100–322, § 415(b)(1)(A), (C), redesignated subsec. (a) of section 1816 of this title as subsec. (a) of this section, and in par. (4)(A)(i)(I) substituted “paragraph (2) of this subsection” for “section 1816(a)(2) of this title”.
Subsec. (b). Pub. L. 100–322, § 415(b)(1)(C), redesignated subsec. (b) of section 1816 of this title as subsec. (b) of this section.
Subsec. (c). Pub. L. 100–322, § 415(b)(1)(B), (C), redesignated subsec. (c) of section 1816 of this title as subsec. (c) of this section, in par. (10)(A) inserted “(or such earlier date following the expiration of a reasonable period of time for such sale to occur as the Administrator may specify pursuant to regulations prescribed by the Administrator to implement this subsection)” before period at end, and in par. (10)(B)(ii) inserted “(5)(A) or” after “under paragraph”.
1987—Subsec. (a)(4). Pub. L. 100–198, § 4(a), added par. (4).
Subsec. (c)(1)(D). Pub. L. 100–198, § 5(a)(1)–(3), substituted “Except as provided in subparagraph (D) of paragraph (10) of this subsection, the” for “The” at beginning, “applicable under paragraph (10) of this subsection, and” for “of the liquidation sale of the property securing the loan (or such earlier date following the expiration of a reasonable period of time for such sale to occur as the Administrator may specify pursuant to regulations prescribed by the Administrator to implement this subsection), and” in cl. (ii), and “regulations prescribed by the Administrator to implement this subsection” for “such regulations” in cl. (iii).
Subsec. (c)(10), (11). Pub. L. 100–198, § 5(a)(4), added pars. (10) and (11).
1984—Subsec. (a)(1). Pub. L. 98–369, § 2512(a)(1)(A)–(C), designated existing first sentence as par. (1), substituted “Administrator of such default. Upon receipt of such notice, the Administrator may, subject to subsection (c) of this section,” for “Administrator who shall thereupon”, and substituted “guaranteed. If the Administrator makes a payment, the Administrator shall” for “guaranteed, and shall”.
Subsec. (a)(2). Pub. L. 98–369, § 2512(a)(1)(A), designated existing second and third sentences as par. (2).
Subsec. (a)(3). Pub. L. 98–369, § 2512(a)(1)(A), designated existing fourth sentence as par. (3).
Subsec. (c). Pub. L. 98–369, § 2512(a)(2), added subsec. (c).
1976—Subsec. (a). Pub. L. 94–324 substituted “the Administrator’s” for “his”.
Subsec. (b). Pub. L. 94–324 substituted “the Administrator” for “he” wherever appearing.
1965—Pub. L. 89–117 designated existing provisions as subsec. (a) and added subsec. (b).
heading: Effective Date of 2013 Amendment
text: Amendment by Pub. L. 113–37 effective Oct. 1, 2013, see section 4(a) of Pub. L. 113–37, set out as a note under section 322 of this title.
heading: Effective Date of 2010 Amendment
text: Pub. L. 111–275, title VIII, § 802(b), Oct. 13, 2010, 124 Stat. 2889, provided that: “The amendments made by subsection (a) [amending this section] shall apply with respect to a housing loan guaranteed after the date of the enactment of this Act [Oct. 13, 2010].”
heading: Effective Date of 1993 Amendment
text: Pub. L. 103–66, title XII, § 12006(b), Aug. 10, 1993, 107 Stat. 414, provided that: “The amendments made by this section [amending this section] shall become effective October 1, 1993.”
heading: Effective Date of 1989 Amendment
text: Pub. L. 101–237, title III, § 308(b)(2), Dec. 18, 1989, 103 Stat. 2075, provided that: “The amendment made by paragraph (1) [amending this section] shall take effect as of October 1, 1989.”
heading: Effective Date of 1987 Amendment
text: Pub. L. 100–198, § 4(b), Dec. 21, 1987, 101 Stat. 1316, provided that: “The amendment made by subsection (a) [amending this section] shall take effect on March 1, 1988.”
Pub. L. 100–198, § 5(c), Dec. 21, 1987, 101 Stat. 1317, provided that: “The amendments made by subsection (a) [amending this section] shall apply to defaults which occur more than 60 days after the date of the enactment of this Act [Dec. 21, 1987].”
heading: Effective Date of 1984 Amendment
text: Pub. L. 100–136, § 1(a), Oct. 16, 1987, 101 Stat. 813, provided that: “Notwithstanding section 2512(c) of the Deficit Reduction Act of 1984 (Public Law 98–369) [set out below], the provisions of section 1816(c) [now 3732(c)] of title 38, United States Code, shall continue in effect through November 15, 1987.”
Pub. L. 98–369, div. B, title V, § 2512(c)(1), July 18, 1984, 98 Stat. 1120, provided that: “The amendments made by subsection (a) [amending subsec. (a) and adding subsecs. (c) and (d) of section 1816 [now 3732(a), (c) and 3733(a)] of this title] shall take effect on October 1, 1984.”
Pub. L. 98–369, div. B, title V, § 2512(c)(2), July 18, 1984, 98 Stat. 1120, which provided that subsecs. (c) and (d) of section 1816 (now 3732(a), (c) and 3733(a)) of this title would cease to be effective on Oct. 1, 1987, was repealed by Pub. L. 100–198, § 5(b), Dec. 21, 1987, 101 Stat. 1317.
heading: Effective Date of 1976 Amendment
text: Amendment by Pub. L. 94–324 effective June 30, 1976, see section 9(a) of Pub. L. 94–324, set out as a note under section 3701 of this title.
“Net Value” Defined With Respect to Loans Closed Before October 1, 1993
Pub. L. 102–389, title I, Oct. 6, 1992, 106 Stat. 1574, provided in part: “That notwithstanding the provisions of 38 U.S.C. 3732(c)(1)(C) and (c)(11) or any other law, with respect to any loan guaranteed for any purpose specified in 38 U.S.C. 3710 which was closed before October 1, 1993, the term ‘net value’ for purposes of paragraphs (4) through (10) of 38 U.S.C. 3732[(c)] shall mean ‘the amount equal to (i) the fair market value of the property, minus (ii) the total of the amounts which the Secretary estimates the Secretary would incur (if the Secretary were to acquire and dispose of the property) for property taxes, assessments, liens, property maintenance, property improvement, administration, resale (including losses sustained on the resale of the property), and other costs resulting from the acquisition and disposition of the property, excluding any amount attributed to the cost of the Government of borrowing funds’.”