38 U.S.C. §3732 — Procedure on default

va-38usc-3732

38 U.S.C. §3732 governs the VA-guaranteed-loan default-procedure framework: holder notice of default to the Secretary; partial-claim and forbearance authority; VA "loss-mit-sequence" requirement (new subsec. (d) added by Pub. L. 119-31, July 30, 2025); information & counseling duties on receipt of default notice; partial-payment refusal-notification; pre-liquidation-sale notice to the Secretary with net-value determination; and the claim-liability calculation framework (net value vs. total indebtedness; conveyance option; refusal-of-partial-payment notice).

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source:
  type: regulation
  id: va-38usc-3732
  authority: 38 U.S.C. §3732 — Procedure on default
  description: |
    38 U.S.C. §3732 governs the VA-guaranteed-loan default-procedure
    framework: holder notice of default to the Secretary; partial-claim
    and forbearance authority; VA "loss-mit-sequence" requirement (new
    subsec. (d) added by Pub. L. 119-31, July 30, 2025); information &
    counseling duties on receipt of default notice; partial-payment
    refusal-notification; pre-liquidation-sale notice to the Secretary
    with net-value determination; and the claim-liability calculation
    framework (net value vs. total indebtedness; conveyance option;
    refusal-of-partial-payment notice).
obligations:
  - id: va-38usc-3732-a1-default-notice-to-secretary
    canonical_id: va-38usc-3732-a1-default-notice-to-secretary
    section: 38 U.S.C. §3732(a)(1) — Default notice to the Secretary
    description: |
      In the event of default in the payment of any loan guaranteed under
      38 U.S.C. chapter 37, [LENDER] (as holder of the loan) shall notify
      the Secretary of such default. Upon receipt of such notice, the
      Secretary may, subject to §3732(c), pay [LENDER] the guaranty not in
      excess of the pro rata portion of the amount originally guaranteed;
      if the Secretary makes such payment, the Secretary shall be
      subrogated to the rights of the holder to the extent of the amount
      paid (except as provided in §3703(e)).
    type: do
    audit_question: For every VA-guaranteed loan that goes into default, can [LENDER] (as holder) evidence that notice of the default was provided to the Secretary?
    program_review: Does the program ensure the holder notifies the Secretary of default on every defaulted VA-guaranteed loan?
    file_review: Spot-check defaulted loans; confirm the default notice to the Secretary was given (this is largely satisfied through the §36.4317(c)(7) EDN channel — read against that report).
    judgment: false
    feeds: []
    workflow_phase: servicing
    owner_role: default_servicing_analyst
    secondary_owner_role: compliance_officer
    cadence: per-default
    consequence: ''
    tags:
      - round-c
      - regulator-direct
      - va
      - statute
      - default-notice
      - servicing
      - promoted
    primary_source:
      tier: 1
      authority: 38 U.S.C. §3732(a)(1)
      source_class: va-statute
      source_url: https://www.law.cornell.edu/uscode/text/38/3732
      snapshot_id: 6bfcd3949c1c50a5
      fetched_at: '2026-05-24T19:34:36Z'
      content_hash: sha256:1e3012b1f2c74b22fde01214b5b1fb7f3b5b3112973a90b41753743727b3dfef
      paragraph_quote: In the event of default in the payment of any loan guaranteed under this chapter, the holder of the loan shall notify the Secretary of such default.
      drafter_attestation: |
        Copied verbatim from snapshot 6bfcd3949c1c50a5 (content.txt) at
        2026-05-24T20:00Z. Substring is the leading §3732(a)(1) holder-
        notice requirement; the subrogation/payment language is
        paraphrased in description.
    promoted_at: '2026-05-24T20:12:28+00:00'
    promoted_from: va-38usc-3732-roundc-v1.yaml
  - id: va-38usc-3732-a5-partial-payment-refusal-notice
    canonical_id: va-38usc-3732-a5-partial-payment-refusal-notice
    section: 38 U.S.C. §3732(a)(5) — Partial-payment refusal notice to the Secretary
    description: |
      In the event of default in the payment of any loan guaranteed or
      insured under 38 U.S.C. chapter 37 in which a partial payment has
      been tendered by the veteran and refused by [LENDER] (as holder),
      [LENDER] 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.
    type: do
    audit_question: For every VA-guaranteed loan default where [LENDER] (as holder) refuses a partial payment tendered by the veteran, can [LENDER] evidence that the Secretary was notified as soon as the partial payment was refused, with the §3732(a)(5) statement of circumstances (default circumstances, amount tendered, indebtedness as of tender date, and reasons for refusal) where required?
    program_review: Does the program account for the §3732(a)(5) refusal-notice trigger — when the holder refuses a partial payment tendered by the veteran on a defaulted loan, notify the Secretary as soon as refused, with the required statement (circumstances, amount tendered, indebtedness at tender, reasons for refusal) where required?
    file_review: Spot-check defaulted-loan files where a partial payment was refused; confirm prompt Secretary notification with the §3732(a)(5) statement. The officer judges whether the stated reason for refusal was a permissible basis.
    judgment: true
    feeds: []
    workflow_phase: servicing
    owner_role: default_servicing_analyst
    secondary_owner_role: compliance_officer
    cadence: per-partial-payment-refusal
    consequence: ''
    tags:
      - round-c
      - regulator-direct
      - va
      - statute
      - partial-payment-refusal
      - servicing
      - promoted
    primary_source:
      tier: 1
      authority: 38 U.S.C. §3732(a)(5)
      source_class: va-statute
      source_url: https://www.law.cornell.edu/uscode/text/38/3732
      snapshot_id: 6bfcd3949c1c50a5
      fetched_at: '2026-05-24T19:34:36Z'
      content_hash: sha256:1e3012b1f2c74b22fde01214b5b1fb7f3b5b3112973a90b41753743727b3dfef
      paragraph_quote: 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 loan shall notify the Secretary as soon as such payment has been refused.
      drafter_attestation: |
        Copied verbatim from snapshot 6bfcd3949c1c50a5 (content.txt) at
        2026-05-24T20:00Z. Substring is the leading §3732(a)(5) partial-
        payment-refusal notice requirement; the optional content
        requirements are paraphrased in description.
    promoted_at: '2026-05-24T20:12:28+00:00'
    promoted_from: va-38usc-3732-roundc-v1.yaml
  - id: va-38usc-3732-a4-information-and-counseling
    canonical_id: va-38usc-3732-a4-information-and-counseling
    section: 38 U.S.C. §3732(a)(4) — Information & counseling on receipt of default notice
    description: |
      Upon receiving a notice pursuant to §3732(a)(1), the Secretary shall
      provide the veteran with information and, to the extent feasible,
      counseling regarding (I) alternatives to foreclosure (including
      possible methods of curing the default, conveyance of the property
      to the Secretary by deed in lieu of foreclosure, and the §3732(a)(2)
      actions); and (II) what VA's and the veteran's liabilities would be
      in the event of foreclosure — except with respect to loans made by
      [LENDER] that the Secretary has determined has a demonstrated record
      of consistently providing timely and accurate information to
      veterans on such matters.
    type: do
    audit_question: For every VA-guaranteed loan default where [LENDER] provides the veteran with information and counseling regarding alternatives to foreclosure (in lieu of the Secretary providing it), can [LENDER] evidence the determination by the Secretary that [LENDER] has a demonstrated record of consistently providing timely and accurate information to veterans?
    program_review: Does the program account for the §3732(a)(4) lender-self-help exception — where [LENDER] provides the veteran foreclosure-alternative information/counseling in lieu of the Secretary, it must hold the Secretary's determination that [LENDER] has a demonstrated record of consistently providing timely and accurate information to veterans?
    file_review: Spot-check defaulted-loan files where [LENDER] (not the Secretary) provided the information/counseling; confirm the Secretary's demonstrated-record determination is on file.
    judgment: false
    feeds: []
    workflow_phase: servicing
    owner_role: default_servicing_analyst
    secondary_owner_role: compliance_officer
    cadence: per-default
    consequence: ''
    tags:
      - round-c
      - regulator-direct
      - va
      - statute
      - default-counseling
      - servicing
      - promoted
    primary_source:
      tier: 1
      authority: 38 U.S.C. §3732(a)(4)
      source_class: va-statute
      source_url: https://www.law.cornell.edu/uscode/text/38/3732
      snapshot_id: 6bfcd3949c1c50a5
      fetched_at: '2026-05-24T19:34:36Z'
      content_hash: sha256:1e3012b1f2c74b22fde01214b5b1fb7f3b5b3112973a90b41753743727b3dfef
      paragraph_quote: 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.
      drafter_attestation: |
        Copied verbatim from snapshot 6bfcd3949c1c50a5 (content.txt) at
        2026-05-24T20:00Z. Substring is the §3732(a)(4) lender-carve-out
        proviso; the substantive counseling requirements are paraphrased
        in description.
    promoted_at: '2026-05-24T20:12:28+00:00'
    promoted_from: va-38usc-3732-roundc-v1.yaml
  - id: va-38usc-3732-c3-pre-liquidation-sale-notice
    canonical_id: va-38usc-3732-c3-pre-liquidation-sale-notice
    section: 38 U.S.C. §3732(c)(3)(A) — Pre-liquidation-sale notice to the Secretary
    description: |
      Before carrying out a liquidation sale of real property securing a
      defaulted VA-guaranteed loan, [LENDER] (as 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 §3732(c).
    type: do
    audit_question: For every VA-guaranteed defaulted loan [LENDER] proposes to liquidate by liquidation sale, can [LENDER] evidence pre-sale notice to the Secretary in accordance with the implementing regulations?
    program_review: Does the program ensure the holder notifies the Secretary of a proposed liquidation sale before carrying it out, per the implementing regulations?
    file_review: Spot-check liquidation-sale files; confirm pre-sale notice to the Secretary in accordance with the implementing regulations.
    judgment: false
    feeds: []
    workflow_phase: servicing
    owner_role: default_servicing_analyst
    secondary_owner_role: compliance_officer
    cadence: per-liquidation-sale
    consequence: ''
    tags:
      - round-c
      - regulator-direct
      - va
      - statute
      - liquidation-sale-notice
      - servicing
      - promoted
    primary_source:
      tier: 1
      authority: 38 U.S.C. §3732(c)(3)(A)
      source_class: va-statute
      source_url: https://www.law.cornell.edu/uscode/text/38/3732
      snapshot_id: 6bfcd3949c1c50a5
      fetched_at: '2026-05-24T19:34:36Z'
      content_hash: sha256:1e3012b1f2c74b22fde01214b5b1fb7f3b5b3112973a90b41753743727b3dfef
      paragraph_quote: 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.
      drafter_attestation: |
        Copied verbatim from snapshot 6bfcd3949c1c50a5 (content.txt) at
        2026-05-24T20:00Z. Substring is the full §3732(c)(3)(A) operative
        pre-sale notice requirement.
    promoted_at: '2026-05-24T20:12:28+00:00'
    promoted_from: va-38usc-3732-roundc-v1.yaml
  - id: va-38usc-3732-d-mandatory-loss-mit-sequence
    canonical_id: va-38usc-3732-d-mandatory-loss-mit-sequence
    section: 38 U.S.C. §3732(d) — Mandatory loss-mit sequence prerequisite to whole-loan purchase
    description: |
      The Secretary shall prescribe loss mitigation procedures, including
      a mandatory sequence in which [LENDER] (as the holder of a loan
      guaranteed under 38 U.S.C. chapter 37) shall offer loss mitigation
      options (including an option to enter into a partial claim agreement
      under the VA Home Loan Program Reform Act) to a veteran, to help
      prevent the foreclosure of such loan. The Secretary may not purchase
      an entire such loan until the veteran has completed such sequence.
    type: do
    audit_question: For every VA-guaranteed defaulted loan [LENDER] (as holder) services, can [LENDER] evidence offer of loss mitigation options to the veteran in the Secretary-prescribed mandatory sequence (including partial claim under the VA Home Loan Program Reform Act) before any §3732(a)(2) whole-loan purchase by the Secretary?
    program_review: Does the loss-mit program account for the Secretary-prescribed mandatory sequence — offering loss-mit options (including a partial-claim agreement under the VA Home Loan Program Reform Act) to the veteran before any whole-loan purchase by the Secretary?
    file_review: Spot-check defaulted-loan loss-mit files; confirm the options were offered in the prescribed mandatory sequence before any whole-loan purchase. The officer judges whether the sequence was genuinely worked, not merely papered.
    judgment: true
    feeds: []
    workflow_phase: servicing
    owner_role: default_servicing_analyst
    secondary_owner_role: compliance_officer
    cadence: per-default
    consequence: ''
    tags:
      - round-c
      - regulator-direct
      - va
      - statute
      - loss-mit-sequence
      - partial-claim
      - servicing
      - promoted
    primary_source:
      tier: 1
      authority: 38 U.S.C. §3732(d)
      source_class: va-statute
      source_url: https://www.law.cornell.edu/uscode/text/38/3732
      snapshot_id: 6bfcd3949c1c50a5
      fetched_at: '2026-05-24T19:34:36Z'
      content_hash: sha256:1e3012b1f2c74b22fde01214b5b1fb7f3b5b3112973a90b41753743727b3dfef
      paragraph_quote: The Secretary shall prescribe loss mitigation procedures, including a mandatory sequence in which the holder of a loan guaranteed under this chapter shall offer loss mitigation options (including an option to enter into a partial claim agreement under the VA Home Loan Program Reform Act) to a veteran , to help prevent the foreclosure of such loan. The Secretary may not purchase an entire such loan until the veteran has completed such sequence.
      drafter_attestation: |
        Copied verbatim from snapshot 6bfcd3949c1c50a5 (content.txt) at
        2026-05-24T20:00Z. Substring is the full §3732(d) operative
        paragraph (added by Pub. L. 119-31, July 30, 2025).
    promoted_at: '2026-05-24T20:12:28+00:00'
    promoted_from: va-38usc-3732-roundc-v1.yaml
_promotion_history:
  - promoted_at: '2026-05-24T20:12:28+00:00'
    candidate_path: obligations\_remediation\round-c-type-a\va-38usc-3732-roundc-v1.yaml
    candidates_promoted: 5
    candidates_skipped_existing: 0

Verbatim regulatory text (5)

Verbatim provisions from 38 U.S.C. §3732 — Procedure on default — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.

38 U.S.C. §3732(a)(1) — Default notice to the Secretary

In the event of default in the payment of any loan guaranteed under this chapter, the holder of the loan shall notify the Secretary of such default.

Source: 38 U.S.C. §3732(a)(1) · source URL · snapshot 6bfcd3949c1c50a5

38 U.S.C. §3732(a)(5) — Partial-payment refusal notice to the Secretary

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 loan shall notify the Secretary as soon as such payment has been refused.

Source: 38 U.S.C. §3732(a)(5) · source URL · snapshot 6bfcd3949c1c50a5

38 U.S.C. §3732(a)(4) — Information & counseling on receipt of default notice

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.

Source: 38 U.S.C. §3732(a)(4) · source URL · snapshot 6bfcd3949c1c50a5

38 U.S.C. §3732(c)(3)(A) — Pre-liquidation-sale notice to the Secretary

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.

Source: 38 U.S.C. §3732(c)(3)(A) · source URL · snapshot 6bfcd3949c1c50a5

38 U.S.C. §3732(d) — Mandatory loss-mit sequence prerequisite to whole-loan purchase

The Secretary shall prescribe loss mitigation procedures, including a mandatory sequence in which the holder of a loan guaranteed under this chapter shall offer loss mitigation options (including an option to enter into a partial claim agreement under the VA Home Loan Program Reform Act) to a veteran , to help prevent the foreclosure of such loan. The Secretary may not purchase an entire such loan until the veteran has completed such sequence.

Source: 38 U.S.C. §3732(d) · source URL · snapshot 6bfcd3949c1c50a5