Change Date

September 15, 2004, Change 4

This section has been changed to create subsection lettering.

a. Policy

Generally, loans for the purchase and construction of homes will be first liens, subject only to taxes, special assessments, and ground rents.

VA will not approve superior liens in favor of private entities unless they

·   are legally or practically necessary, and

·   result in no prejudice to veterans or the Government.

b. Requirements

The lender must obtain VA approval of liens held by private parties which are superior to VA home mortgage liens.

Liens held by mandatory membership home associations in planned unit developments are not addressed in this topic.

The lender must demonstrate that

·   it is not legal or practical to subordinate the superior lien to the VA mortgage

·   there is a viable rationale for not subordinating the superior lien

·   the superior lien will not prejudice veterans or the Government, and

·   if periodic charges or assessments are involved, the amounts are reasonable and limits on the amounts have been established.

Always obtain VA approval before the lien is recorded.  Builders and developers should be aware that if they plan to market properties through VA financing, covenants creating superior liens should not be recorded without VA approval.