January 19, 2001
					           In Reply Refer to:373/26
                						         LOCAL RELEASE 26-01-02


TO:	PROGRAM PARTICIPANTS


SUBJ:	VA HOME LOAN ASSUMPTIONS AND RELEASE OF LIABILITY




Purpose.




The purpose of this release is to remind program participants in our region (CT, MA, ME, NH, NY, RI, 
VT) of the Department of Veteran Affairs (VA) requirements pertaining to VA assumptions and releases
of liability.


What is A VA Home Loan Assumption?


Most homes purchased or refinanced with a VA guaranteed home loan are eventually sold with the 
mortgage paid off at closing.  Under certain circumstances, it is possible for a veteran to sell the property
subject to the assumption of the VA guaranteed loan payments by the purchaser.  The puchaser assuming
the VA loan payments may be either a veteran or non-veteran.


Under What Circumstances Are VA Loan Assumptions Allowed?



All VA loans committed or closed prior to March 1, 1988 are freely assumable.  This means that the
veteran may sell the property and allow the loan to be assumed without the required approval of VA or the
loan holder.  Please note in these cases that the veteran still remains liable for any loss associated with the
VA loan should the assumer fail to meet the mortgage obligations.  VA recommends that veterans with 
loans closed prior to March 1, 1998 contact VA for guidance relative to assumptions, release of liability,
and restoration of the VA home loan benefit.


Effective with VA loans committed and closed on or after March 1, 1988, VA loan assumptions are not 
allowed in most cases unless the veteran first has the assumption approved by the loan holder.  If approved,
the veteran is released of liability in the event the assumer defaults on the loan resulting in a loss to VA.


Loan assumptions or transfers are also allowed regardless of the date of the loan in cases 
described as "unrestricted transfers".  These include cases where the co-borrowers get a
divorce.  Although a release of liability is not mandatory, the parties may wish to obtaina
release for legal or credit purposes.  VA, not the loan holder, must process the application
for release in these cases.



What happens if a loan closed on or after March 1, 1988 is assumed, is not an unrestricted
transfer, and the assumption was not approved by the loan holder?


If an assumed loan is closed on or after March 1, 1988 and is not approved by the loan holder,
failure to obtain approval of the assumption even though payments are current, may
result in an immediate "due on sale" notice from the loan holder.


What if a veteran obtains a release of liability - can the VA entitlement on the sold property restored?


Entitlement associated with an assumption may only be restored to the veteran if the assumer is an eligible
veteran, the assumption has been approved by the loan holder or VA, and the assumer-veteran agrees to 
substitute his or her VA home loan entitlement for the original veteran's.  In these cases the assuming
veteran must occupy the property as his or her principal residence.


What are we asking you to do?


We ask your cooperationin counseling veterans when opportunities arise concerning VA loan assumptions
and the importance of obtaining a release of liability.  It should be made clear that even though the release
may be approved, the veteran's home loan benefit may not be restored unless the assumer is a veteran 
willing to substitute VA home loan entitlement.  If a loan assumption is planned, there should be a 
provision in the sales contract that the purchaser will assume all the obligations of the VA guaranteed loan
to include possible indemnity liability to VA, and that the sale will not be completed until the loan holder or
VA, as applicable, approves the assumption.


If the loan was originated prior to March 1, 1988 and the veteran intends to allow the assumtion without
VA approval we recommend the deed include an assumption clause which may permit VA to grant a 
release of liability subsequent to the conveyance, provided the deed has been recorded, the loan is current,
and the purchaser's income and credit are acceptable.  The following language is acceptable for such an
assumption cluase in our region:


"This conveyance is made subject to the mortgage of the grantor(s)_________(Original Lender)__________
to_________(Original Buyer(s))_________which is recorded in _____(Document Book/Page Reference)_______,
which mortgage the assumers,________________________________, agree to pay and
also assume the obligations ________(Original Buyer(s))________ under the terms of the instruments 
creating the loan to indemnify the Department of Veterans Affairs to the extent of any claim payment 
arising from the guaranty of the indebtedness mentioned above."


How Do You Contact VA For Questions Related to Assumptions/Release of Liability If The 
Property Is Located In New England Or New York?


You may call our Loan Processing Section at (603) 666-7502 or send an e-mail to nh_lp@vba.va.gov.






William P. Geagan
Acting Loan Guaranty Officer