g. Partial Loss of Guaranty

A holder of a VA loan who fails to comply with applicable law and regulations may receive only partial payment of a claim if VA’s liability increases due to the holder’s noncompliance.  Material misrepresentation which is not willful has the same consequence.

No claim will be paid on such loan until the amount of any increase in VA’s liability is known.  The burden of proof is on the holder to establish that VA’s increased liability is not due to the holder’s noncompliance or misrepresentation.

Examples of noncompliance with applicable law and regulations which may lead to an increase in VA’s liability include

·   failure to obtain and retain the required lien on property to secure the loan

·   failure to include the power to substitute trustees

·   failure to procure and maintain insurance coverage

·   failure to advise VA as to default

·   failure to provide notice of intention to begin foreclosure action

·   failure to provide notice to VA in any suit or action, or notice of sale

·   improper release, conveyance, substitution or exchange of security

·   lack of legal capacity of a party to the transaction

·   failure to assure that escrowed/earmarked funds are expended in accordance with the agreement, and

·   failure to take into consideration limitations upon the quantum or quality of the estate or property.