[Federal Register Volume 61, Number 108 (Tuesday, June 4, 1996)]
[Rules and Regulations]
[Pages 28057-28059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13855]



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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AI01


Loan Guaranty: Miscellaneous

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: This document amends the Department of Veterans Affairs (VA) 
regulations governing the VA home loan program by deleting superseded 
provisions, amending provisions to reflect statutory changes, deleting 
provisions that have no legal effect, and updating a position title. 
This document also amends the regulations by incorporating a precedent 
opinion of the VA General Counsel stating that the law governing the 
housing loan and specially adapted housing programs does not preclude 
VA from approving a loan or grant when the property will be held in a 
Family Living Trust, provided the veteran has at least an equitable 
life estate in the property, the lien for any VA financing attaches to 
the remainder, and the trust arrangement is valid under State law.

EFFECTIVE DATE: June 4, 1996.

FOR FURTHER INFORMATION CONTACT: Ms. Judith Caden, Assistant Director 
for Loan Policy (264), Loan Guaranty Service, Veterans Benefits 
Administration, Department of Veterans Affairs, 810 Vermont Avenue, 
NW., Washington, DC 20420, (202) 273-7368.

SUPPLEMENTARY INFORMATION: Section 36.4216 is deleted since it has been 
superseded by a new 38 CFR Part 44 which sets forth the current 
requirements for governmentwide debarment and suspension of program 
participants, including manufactured home lenders and loan holders from 
the VA Loan Guaranty Program.
    A recent legal opinion of the VA General Counsel, VAOPGCPREC 26-95, 
published in summary form in the Federal Register on March 12, 1996, 61 
FR 10063, holds that the law governing the housing loan and specially 
adapted housing programs does not preclude VA from approving a loan or 
grant when the property will be held in a Family Living Trust, provided 
the veteran has at least an equitable life estate in the property, the 
lien for any VA financing attaches to the remainder, and the trust 
arrangement is valid under State law. Previous regulations specifying 
the title interest a veteran must obtain in the subject property in 
order to qualify for assistance under these programs did not address 
property held in trust for estate-planning reasons. Accordingly, 
sections 36.4253(a), 36.4350(a), 36.4402(a), and 36.4515(a) are revised 
to reflect the holding in this precedent opinion.
    The Servicemen's Readjustment Act of 1944 originally permitted VA 
to pay a guaranty claim when the holder reported the loan as being in 
default. The Deficit Reduction Act of 1984, P.L. 98-369, Sec. 2512, 
amended what is now codified as 38 U.S.C. Sec. 3732(a) to require that 
a liquidation sale must be held before a claim may be paid. Sections 
36.4316 and 36.4318 are amended to reflect these statutory changes.
    Section 36.4346(g)(2) is revised to correct citation references.
    Section 36.4402(a) is revised to provide that a veteran is eligible 
for assistance under section 2101(a) of Chapter 21 if he or she has or 
will acquire an interest in a suitable housing unit which is at least a 
beneficial interest in a revocable Family Living Trust. This change 
incorporates the holding of VAOPGCPREC 26-95, as discussed above.
    Section 36.4404(a) is revised to note that the maximum statutory 
amount of a grant to obtain specially adapted housing is $38,000. 
Section 36.4404(b) is revised to update the maximum statutory amount of 
a grant for a residence already adapted with special features from 
$6,000 to $6,500.
    The authority cited for Sec. 36.4507(c) is corrected, from 38 
U.S.C. Sec. 3710(c) to Sec. 3711.
    Regulations referring to covenants purporting to restrict the sale 
or occupancy of property by race, color, religion, or national origin 
are removed. Previous regulations (Secs. 36.4350(b)(7) and 
36.4515(b)(7)) provided that the violation of such a covenant will not 
render title to property unacceptable to VA. Also, under previous 
Sec. 36.4510(d), a borrower's recording such a covenant may have 
constituted an event of default on a VA direct loan.
    In removing these provisions, VA stresses its continuing commitment 
to fair housing. VA affirmatively administers its housing programs in a 
manner to further the purposes and objectives of the Fair Housing Act, 
42 U.S.C. Secs. 3601-3631. VA will not condone any violation of fair 
housing law in its programs, and will take all necessary measures to 
deal with any violation that comes to VA's attention. VA believes, 
however, that present law makes these regulatory provisions 
unnecessary.
    The provisions relating to racially-restrictive covenants were 
originally added to the regulations in response to the Supreme Court 
decision in Shelley v. Kraemer, 334 U.S. 1 (1948). Although that 
decision held that courts may not enforce racially-restrictive 
covenants, it also held such privately-created covenants were not 
invalid and could be effectuated by voluntary adherence.
    Much has changed in the area of fair housing since 1948. The Fair 
Housing Act clearly and unambiguously prohibits discrimination in the 
sale, rental, or financing of housing on the basis of race, color, 
religion, sex, familial status, or national origin. VA believes it is 
clear that such restrictive covenants are absolutely null and void, and 
any attempt to create or enforce such a covenant would be unlawful. 
Since these covenants have absolutely no effect, VA sees no reason to 
provide by regulation that violations of such purported restrictions 
may be ignored in considering whether or not a veteran has good and 
marketable title. VA does not believe any knowledgeable attorney or 
title professional would consider the existence of such an obsolete, 
unlawful covenant in reviewing title.
    Case law also holds that recorders of deeds may not accept for 
recording new racially restrictive covenants. Accordingly, VA sees no 
purpose in making the recording of such a covenant an event of default.

[[Page 28058]]

    Finally, all references to the Chief Benefits Director in Part 36 
are changed to refer to this official's new title, the Under Secretary 
for Benefits.
    This final rule consists of interpretive rules, restatements of 
statute, updating a position title, and nonsubstantive changes, and, 
therefore, is not subject to the notice-and-comment and effective-date 
provisions of 5 U.S.C. 553.
    The Secretary hereby certifies that this final rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. This final rule would not cause a significant effect on any 
entities since it consists of interpretive rules, restatements of 
statute, updating a position title, and nonsubstantive changes. 
Therefore, pursuant to 5 U.S.C. 605(b), this amendment is exempt from 
the initial and final regulatory-flexibility analysis requirements of 
Secs. 603 and 604.

    The Catalog of Federal Domestic Assistance Program numbers are 
64.106, 64.114, 64.118 and 64.119.

List of Subjects in 38 CFR Part 36

    Condominiums, Handicapped, Housing loan programs--housing and 
community development, Veterans.

    Approved: May 24, 1996.
Jesse Brown,
Secretary of Veterans Affairs.

    For the reasons set out in the preamble, 38 CFR part 36 is amended 
as set forth below.

PART 36--LOAN GUARANTY

    1. The authority citation for part 36 Secs. 36.4201 through 36.4287 
continues to read as follows:

    Authority: Sections 36.4201 through 36.4287 issued under 38 
U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 3720, 3729, unless 
otherwise noted.


Sec. 36.4216  [Removed]

    2. Section 36.4216 is removed.


Sec. 36.4220  [Amended]

    3. In Sec. 36.4220, paragraph (a) introductory text is amended by 
removing ``Chief Benefits Director'' both times it appears and adding, 
in its place, ``Under Secretary for Benefits''.


Sec. 36.4221  [Amended]

    4. In Sec. 36.4221 paragraphs (b) and (c) are amended by removing 
``Chief Benefits Director'' each time it appears and adding, in its 
place, ``Under Secretary for Benefits''.


Sec. 36.4226  [Amended]

    5. In Sec. 36.4226, paragraphs (d), (f) and (g) are amended by 
removing ``Chief Benefits Director'' and adding, in its place ``Under 
Secretary for Benefits''.
    6. In Sec. 36.4253, paragraphs (a)(2) and (e) are amended by 
removing ``Chief Benefits Director'' and adding, in its place, ``Under 
Secretary for Benefits''. Paragraph (a)(3) is revised, and a new 
paragraph (a)(4) is added to read as follows:


Sec. 36.4253  Title and lien requirements.

    (a) * * *
* * * * *
    (3) A life estate, provided that the remainder and reversionary 
interests are subjected to the lien; or
    (4) A beneficial interest in a revocable Family Living Trust that 
ensures that the veteran, or veteran and spouse, have an equitable life 
estate, provided the lien attaches to any remainder interest and the 
trust arrangement is valid under State law.
* * * * *


Sec. 36.4254  [Amended]

    7. In Sec. 36.4254, paragraph (a)(8) is amended by removing ``Chief 
Benefits Director'' and adding, in its place ``Under Secretary for 
Benefits''.


Sec. 36.4283  [Amended]

    8. In Sec. 36.4283, paragraph (k) is amended by removing ``Chief 
Benefits Director'' and adding, in its place, ``Under Secretary for 
Benefits''.
    9. The authority citation for part 36 36.4300 through 36.4375 is 
revised to read as follows:

    Authority: Sections 36.4300 through 36.4375 issued under 38 
U.S.C. 101, 501, 3701-3704, 3710, 3712-3714, 3720, 3729, 3732, 
unless otherwise noted.


Sec. 36.4312  [Amended]

    10. In Sec. 36.4312, paragraph (d)(1)(ix) and (d)(7)(iv) are 
amended by removing ``Chief Benefits Director'' and adding, in its 
place, ``Under Secretary for Benefits''.


Sec. 36.4316  [Amended]

    11. In Sec. 36.4316, paragraph (c) is removed, and paragraph (a) is 
amended by removing ``, submit a claim for payment of the guaranty. The 
holder may also then or thereafter'', and paragraph (b) is amended by 
removing ``A claim for the guaranty, or'' and revising ``the'' to read: 
``The''.
    12. In Sec. 36.4318, paragraph (a) is revised to read as follows:


Sec. 36.4318  Refunding of loans in default.

    (a) Upon receiving a notice of default or a notice under 
Sec. 36.4317, the Secretary may within 30 days thereafter require the 
holder upon penalty of otherwise losing the guaranty or insurance to 
transfer and assign the loan and the security therefore to the 
Secretary or to another designated by the Secretary upon receipt of 
payment in full of the balance of the indebtedness remaining unpaid to 
the date of such assignment. Such assignment may be made without 
recourse but the transferor shall not thereby be relieved from the 
provisions of Sec. 36.4325.
* * * * *
    13. In Sec. 36.4320, paragraph (j) is amended by removing ``Chief 
Benefits Director'' and adding, in its place, ``Under Secretary for 
Benefits''; paragraph (h)(2) is revised, and a new authority citation 
is added at the end of the section to read as follows:


Sec. 36.4320  Sale of security.

* * * * *
    (h) * * *
    (2) The holder may cancel any insurance in force when the holder 
acquires the property, provided the holder has obtained the prior 
approval of the Secretary. Coincident with the notice of election to 
convey or transfer the property to the Secretary or with the 
acquisition of the property by the holder, following such notice, 
whichever is later, the holder shall obtain endorsements on all such 
insurance policies naming the Secretary as an assured, as his/her 
interest may appear. Such insurance policies shall be forwarded to the 
Secretary at the time of the conveyance or transfer of the property to 
the Secretary or as soon after that time as feasible.
* * * * *
(Authority: 38 U.S.C. 3732, Pub. L. 100-527)


Sec. 36.4335  [Amended]

    14. In Sec. 36.4335, the introductory text is amended by removing 
``Chief Benefits Director'' and adding, in its place, ``Under Secretary 
for Benefits''.


Sec. 36.4342  [Amended]

    15. In Sec. 36.4342, paragraphs (b) and (c) are amended by removing 
``Chief Benefits Director'' each time it appears and adding, in its 
place ``Under Secretary for Benefits''.


Sec. 36.4343  [Amended]

    16. In Sec. 36.4343, paragraph (a) is amended by removing ``Chief 
Benefits Director'' and adding, in its place, ``Under Secretary for 
Benefits''.


Sec. 36.4346  [Amended]

    17. In Sec. 36.4346, paragraph (g)(2) is amended by removing 
``36.4331'' and adding, in its place, ``44.205 and 44.305''.

[[Page 28059]]

Sec. 36.4349  [Amended]

    18. In Sec. 36.4349, paragraphs (d), (f), and (g) are amended by 
removing ``Chief Benefits Director'' and adding, in its place, ``Under 
Secretary for Benefits''.
    19. In Sec. 36.4350, paragraph (a)(2) is amended by removing 
``Chief Benefits Director'' and adding, in its place, ``Under Secretary 
for Benefits''; paragraph (b)(7) is removed; and paragraph (b)(8) is 
redesignated as paragraph (b)(7). Paragraph (a)(3) is amended by 
removing ``.'' and adding, in its place, ``; or'', and a new paragraph 
(a)(4) is added to read as follows:


Sec. 36.4350  Estate of veteran in real property.

    (a) * * *
    (4) A beneficial interest in a revocable Family Living Trust that 
ensures that the veteran, or veteran and spouse, have an equitable life 
estate, provided the lien attaches to any remainder interest and the 
trust arrangement is valid under State law.
* * * * *


Sec. 36.4352  [Amended]

    20. Section 36.4352 is amended by removing ``Chief Benefits 
Director'' and adding, in its place, ``Under Secretary for Benefits''.


Sec. 36.4364  [Amended]

    21. In Sec. 36.4364, paragraph (f) is amended by removing ``Chief 
Benefits Director'' and adding, in its place, ``Under Secretary for 
Benefits''.


Sec. 36.4393  [Amended]

    22. In Sec. 36.4393, paragraphs (g) and (h) are amended by removing 
``Chief Benefits Director'' each time it appears and adding, in its 
place, ``Under Secretary for Benefits''.
    23. The authority citation for part 36 36.4400 through 36.4411 
continues to read as follows:

    Authority: Sections 36.4400 through 36.4411 issued under 72 
Stat. 1114, 1168, as amended (38 U.S.C. 501, 2101), unless otherwise 
noted.

    24. In Sec. 36.4402, paragraph (a)(4)(iii) is amended by removing 
``Chief Benefits Director'' and adding, in its place, ``Under Secretary 
for Benefits''. Paragraph (a)(4)(iii) is further amended by removing 
``;'' and adding, in its place, ``, or''; and a new paragraph 
(a)(4)(iv) is added to read as follows:


Sec. 36.4402  Eligibility.

    (a) * * *
    (4) * * *
    (iv) A beneficial interest in a revocable Family Living Trust that 
ensures that the veteran, or veteran and spouse, have an equitable life 
estate, provided the trust arrangement is valid under State law;
* * * * *
    25. In Sec. 36.4404, paragraphs (a) introductory text, (b)(2), and 
the authority citation are revised to read as follows:


Sec. 36.4404  Computation of cost.

    (a) Computation of cost of housing unit. Under section 2101(a) of 
chapter 21, for the purpose of computing the amount of benefits payable 
to a veteran-beneficiary, there may be included in the total cost to 
the veteran the following amount, not to exceed $38,000:
* * * * *
    (b) * * *
    (2) $6,500.

(Authority: 38 U.S.C. 2102(a), (b))


Sec. 36.4408  [Amended]

    26. In Sec. 36.4408, paragraph (b) is amended by removing ``Chief 
Benefits Director'' and adding, in its place, ``Under Secretary for 
Benefits''.
    27. The authority citation for part 36 Secs. 36.4500 through 
36.4600 is revised to read as follows:

    Authority: Sections 36.4500 through 36.4600 issued under 38 
U.S.C. 501, unless otherwise noted.

    28. In Sec. 36.4507, paragraph (b)(2) is amended by removing 
``Chief Benefits Director, and adding, in its place, ``Under Secretary 
for Benefits'', and the authority citation following paragraph (c) is 
revised to read as follows:


Sec. 36.4507  Refinancing of mortgage or other lien indebtedness.

* * * * *
    (c) * * *

(Authority: 38 U.S.C. 3711)
* * * * *


Sec. 36.4510  [Removed]

    29. In Sec. 36.4510, paragraph (d) is removed.
    30. In Sec. 36.4515, paragraph (a)(2) is amended by removing 
``Chief Benefits Director'' and adding, in its place, ``Under Secretary 
for Benefits''; and by removing paragraph (b)(7); and by redesignating 
paragraph (b)(8) as paragraph (b)(7). Paragraph (a)(3) is amended by 
removing ``.'' in the last sentence, and adding, in its place, ``; 
or''; and a new paragraph (a)(4) is added to read as follows:


Sec. 36.4515  Estate of veteran in real property.

    (a) * * *
* * * * *
    (4) A beneficial interest in a revocable Family Living Trust that 
ensures that the veteran, or veteran and spouse, have an equitable life 
estate, provided the lien attaches to any remainder interest and the 
trust arrangement is valid under State law.
* * * * *


Sec. 36.4516  [Amended]

    31. In Sec. 36.4516, paragraph (c) is amended by removing ``Chief 
Benefits Director'' and adding, in its place, ``Under Secretary for 
Benefits''.


Sec. 36.4518  [Amended]

    32. Section 36.4518 is amended by removing ``Chief Benefits 
Director'' and adding, in its place, ``Under Secretary for Benefits''.


Sec. 36.4520  [Amended]

    33. In Sec. 36.4520, paragraph (b) is amended by removing ``Chief 
Benefits Director'' both times it appears and adding, in its place, 
``Under Secretary for Benefits''.


Sec. 36.4600  [Amended]

    34. In Sec. 36.4600, paragraphs (g)(2) and (j) are amended by 
removing ``Chief Benefits Director'' and adding, in its place, ``Under 
Secretary for Benefits''.

[FR Doc. 96-13855 Filed 6-3-96; 8:45 am]
BILLING CODE 8320-01-P