Often times a veteran will decide to have his loan assumed instead of selling the property outright. In this instance, the veteran may request a release of liability (ROL) from the United States Government. Simply put, if a veteran’s home loan goes into default/foreclosure after an assumption and a release of liability have been processed, the VA will not pursue collection with the original veteran.

Generally, assumptions with release of liability are broken into three basic categories:

• Freely Assumable - Ownership can be transferred to any person without prior approval from the VA or the Lender.

• Contact VA - If a release of liability is requested, the veteran must contact VA for an information packet and forms for buyer and seller to complete.

• ROL Processed by VA - When all requested information is received from the seller and buyer, along with a minimal fee for a credit report, VA will underwrite the assumption and notify both parties of their decision. Once approved, the veteran/buyer is responsible for contacting their lender and having the names on the loan changed to reflect the assumption.

• Not Freely Assumable - A "qualifying assumption" must be processed. It is illegal for the veteran to allow the loan to be assumed without prior approval of the lender.

• Contact Real Estate Licensee - If the veteran decides to list the home as a qualifying assumption.

• Contact Lender - Once a sales agreement has been completed, the veteran or the real estate licensee must contact the lender’s assumption department for instructions on how to proceed with the transaction.

• Assumption Processed by Lender - The potential buyer will need to credit and income qualify through the lender, using VA guidelines. If the buyer is approved, the closing may take place.

• Costs - In general, the lender may charge a maximum processing fee of $300, the actual cost of the credit report and, if requested, the cost of an appraisal. If the assumption is approved, a funding fee of ½% of the loan balance will be collected at closing.

• Release of Liability Processed by VA - After closing, the lender will submit the entire assumption package so that VA records can be updated to reflect the ROL.

• Processed by VA - Does not require prior approval by the lender. Includes the following situations:

• Death - The estate of the deceased must provide the VA with a letter stating the circumstances of the transfer, a copy of the death certificate and a copy of the recorded deed transferring ownership of the property from the estate to the assuming relative. The VA approval of this transfer will also release the estate from liability. The estate is responsible for contacting the lender regarding the name change on the loan.

• Divorce - Either party, veteran or spouse, may provide VA with a letter requesting a release of liability due to divorce. A copy of the final divorce decree and a copy of the recorded Quit Claim deed must be submitted. When all required documentation is received and reviewed by VA, the selling spouse will be notified of their release of liability. It is then their responsibility to contact the lender regarding removing their name from the loan.

In all types of assumptions discussed a release of liability may be processed, but a release does not meet the requirements for restoration of the original veteran’s entitlement. However, if the assuming party is an eligible veteran, another option is available.

• Requires a Veteran Assumer - If the assuming party is an eligible veteran with sufficient entitlement available, a substitution of entitlement may be granted. An SOE allows the selling veteran’s entitlement to be restored after the assuming veteran’s entitlement has been substituted on the loan.

• Occupancy Required - The assuming veteran must certify the home will be occupied as a primary residence.

• VA Processes Substitution - If the assumption was processed by the lender, the closing package will be forwarded to VA for processing the SOE. The lender must ensure that the assuming veteran has sufficient entitlement available for substitution before closing. Once the SOE has been finalized by VA, both parties will receive updated Certificates of Eligibility with the substitution indicated.