
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 23, 2000]
[Document affected by Public Law 106-419 Section 402(c)]
[Document affected by Public Law 107-103 Section 405(d)]
[CITE: 38USC3732]

 
                      TITLE 38--VETERANS' BENEFITS
 
               PART III--READJUSTMENT AND RELATED BENEFITS
 
              CHAPTER 37--HOUSING AND SMALL BUSINESS LOANS
 
                SUBCHAPTER III--ADMINISTRATIVE PROVISIONS
 
Sec. 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) 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.
    (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 clause (B) of paragraphs (5), (6),\1\ 
(7), and (8) of this subsection, 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.
---------------------------------------------------------------------------
    \1\ So in original. The reference to clause (B) of paragraph (6) 
probably should be to paragraph (6) in its entirety.
---------------------------------------------------------------------------
    (11) This subsection shall apply to loans closed before October 1, 
2002.

(Pub. L. 85-857, Sept. 2, 1958, 72 Stat. 1212, Sec. 1816(a)-(c); Pub. L. 
89-117, title I, Sec. 107(f), Aug. 10, 1965, 79 Stat. 460; Pub. L. 94-
324, Sec. 7(17), June 30, 1976, 90 Stat. 722; Pub. L. 98-369, div. B, 
title V, Sec. 2512(a), July 18, 1984, 98 Stat. 1117; Pub. L. 100-198, 
Secs. 4(a), 5(a), Dec. 21, 1987, 101 Stat. 1316; renumbered Sec. 1832 
and amended Pub. L. 100-322, title IV, Sec. 415(b)(1)(A)-(C), (5), May 
20, 1988, 102 Stat. 550, 551; Pub. L. 101-237, title III, Secs. 304(b), 
307-308(b)(1), 313(b)(1), (2), Dec. 18, 1989, 103 Stat. 2073-2075, 2077; 
Pub. L. 102-54, Secs. 1, 3(a), 14(g)(1), June 13, 1991, 105 Stat. 267, 
288; renumbered Sec. 3732 and amended Pub. L. 102-83, Sec. 5(a), (c)(1), 
Aug. 6, 1991, 105 Stat. 406; Pub. L. 103-66, title XII, Sec. 12006(a), 
Aug. 10, 1993, 107 Stat. 414; Pub. L. 103-446, title IX, Sec. 907, Nov. 
2, 1994, 108 Stat. 4677; Pub. L. 105-33, title VIII, Sec. 8013, Aug. 5, 
1997, 111 Stat. 664.)


                               Amendments

    1997--Subsec. (c)(11). Pub. L. 105-33 substituted ``October 1, 
2002'' for ``October 1, 1998''.
    1994--Subsec. (c)(6). Pub. L. 103-446, Sec. 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, Sec. 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, Sec. 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, Sec. 907(a)(3), substituted 
``paragraph (6)'' for ``paragraph (6)(B)''.
    1993--Subsec. (c)(1)(C). Pub. L. 103-66, Sec. 12006(a)(1), inserted 
``(including losses sustained on the resale of the property)'' after 
``resale''.
    Subsec. (c)(11). Pub. L. 103-66, Sec. 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, Sec. 5(a), renumbered section 1832 of this 
title as this section.
    Subsec. (a)(1). Pub. L. 102-83, Sec. 5(c)(1), substituted 
``3703(e)'' for ``1803(e)''.
    Subsec. (a)(4)(C). Pub. L. 102-54, Sec. 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, Sec. 5(c)(1), substituted ``3711'' for 
``1811''.
    Subsec. (c)(1)(A). Pub. L. 102-83, Sec. 5(c)(1), substituted 
``3710(a)'' for ``1810(a)''.
    Subsec. (c)(9). Pub. L. 102-83, Sec. 5(c)(1), substituted 
``3703(b)'' for ``1803(b)''.
    Subsec. (c)(11). Pub. L. 102-54, Sec. 3(a), substituted ``December 
31, 1992'' for ``October 1, 1991''.
    1989--Subsec. (a). Pub. L. 101-237, Sec. 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, Sec. 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, Sec. 307, added par. (5).
    Subsecs. (b), (c). Pub. L. 101-237, Sec. 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, Sec. 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, Sec. 308(b)(1), substituted 
``October 1, 1991'' for ``October 1, 1989''.
    1988--Pub. L. 100-322, Sec. 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, Sec. 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, Sec. 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, Sec. 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, Sec. 4(a), added par. (4).
    Subsec. (c)(1)(D). Pub. L. 100-198, Sec. 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, Sec. 5(a)(4), added pars. 
(10) and (11).
    1984--Subsec. (a)(1). Pub. L. 98-369, Sec. 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, Sec. 2512(a)(1)(A), designated 
existing second and third sentences as par. (2).
    Subsec. (a)(3). Pub. L. 98-369, Sec. 2512(a)(1)(A), designated 
existing fourth sentence as par. (3).
    Subsec. (c). Pub. L. 98-369, Sec. 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).


                    Effective Date of 1993 Amendment

    Section 12006(b) of Pub. L. 103-66 provided that: ``The amendments 
made by this section [amending this section] shall become effective 
October 1, 1993.''


                    Effective Date of 1989 Amendment

    Section 308(b)(2) of Pub. L. 101-237 provided that: ``The amendment 
made by paragraph (1) [amending this section] shall take effect as of 
October 1, 1989.''


                    Effective Date of 1987 Amendments

    Section 4(b) of Pub. L. 100-198 provided that: ``The amendment made 
by subsection (a) [amending this section] shall take effect on March 1, 
1988.''
    Section 5(c) of Pub. L. 100-198 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].''


                    Effective Date of 1984 Amendments

    Section 1(a) of Pub. L. 100-136 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.''
    Section 2512(c)(1) of Pub. L. 98-369 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.''
    Section 2512(c)(2) of Pub. L. 98-369, 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, Sec. 5(b), Dec. 21, 1987, 101 Stat. 1317.


                    Effective Date of 1976 Amendment

    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'.''
