REGIONAL OFFICE
NORRIS COTTON FEDERAL BUILDING
275 CHESTNUT STREET
MANCHESTER, NH 03101
January 18, 2002 In Reply Refer to:373/26 LOCAL RELEASE 26-02-04
TO: PROGRAM PARTICIPANTS
SUBJ: VA HOME LOAN ASSUMPTIONS AND RELEASE OF LIABILITY
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 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,
1988, 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 an assumption is approved by VA or the loan holder, 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 obtain
a divorce. Although a release of liability is not mandatory, the parties may wish to obtain
a 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
be restored?
Entitlement associated with an assumption may 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. 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 cooperation in 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 a release can 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
assumption 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 clause 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 ________of
(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 can you contact us?
You may call our Loan Processing Section at (800) 827-6311, option 7, or send an e-mail
to nh_lp@vba.va.gov.
KEITH C. BOERNER
Loan Guaranty Officer