10.02 ELIGIBILITY TO TRANSFER CUSTODY (05/09/17)

© VA Servicers Handbook - M26-4

a. Prior to initiating a TOC event, servicers must determine eligibility to transfer custody. A servicer may initiate a TOC event when all of the following conditions are met:

1. The loan was terminated through a foreclosure or DIL.

2. If the net value of the property is less than the unguaranteed portion of the indebtedness (i.e., the total eligible indebtedness, minus VA’s maximum claim payable under the guaranty), the servicer must write off all indebtedness not covered by the maximum claim payable, the acquisition payment, and required to send a deficiency waiver notice to the borrower once the claim is paid. If a bankruptcy discharge has previously been obtained on the loan, a notice of deficiency waiver is not required.

3. The servicer did not rent the property to a new tenant, or extend the term of an existing tenancy, on other than a month-to-month basis during an after-sale redemption period.

4. The title of the property is or will be acceptable to prudent lending institutions, informed buyers, title companies, and attorneys, generally, in the community in which the property is located.

5. There has been no breach of any conditions affording a right to the exercise of any reverter.

6. If a partial release of security was granted on the property, there was full compliance with the requirements for partial releases of security as described in 38 CFR 36.4827.