VA Servicer Handbook M26-4 Chapter 8
VA Servicer Handbook M26-4 Chapter 8, verbatim from VA KnowVA (article 554400000314377, updated Dec 16, 2025).
Verbatim regulatory text
Verbatim provisions from VA Servicer Handbook M26-4 Chapter 8 — 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.
VA Servicer Handbook M26-4 Chapter 8 — 8.01
8.01 FORECLOSURE (38 C.F.R. 36.4322) a. Servicers are delegated the authority to complete alltermination actions on a VA-guaranteed loan. When a delinquency cannot beresolved, and the loan has been deemed insoluble, or the property has beenabandoned, the servicer should proceed with foreclosure action. The Departmentof Veterans Affairs (VA) encourages servicers to continue loss mitigationefforts even after foreclosure proceedings have commenced. At any time priorto the liquidation sale, servicers must accept funds to cure a delinquencyunless the servicer obtained prior written approval from VA, or ifreinstatement of the loan would adversely affect the dignity of the lien, or isotherwise precluded by state law as (38 C.F.R. 36.4309 (h)).
VA Servicer Handbook M26-4 Chapter 8 — 8.02
8.02 SERVICER REPORTING REQUIREMENTS a. Foreclosure events reported on delinquent loansprovide a snapshot of how each loan is performing, and allows VA to forecastfuture liabilities. The following events are required to be reported by theservicer on delinquent VA-guaranteed loans. Submission of several events belowrequires action by the VA-assigned technician: 1. Foreclosure Referral. Servicers must submitthe event to notify VA that they have referred this loan to an attorney tobegin foreclosure action on a delinquent loan. 2. Foreclosure Sale Scheduled. Servicers mustsubmit the event to notify VA that a foreclosure sale has been scheduled. Inthe event the servicer either postpones, or cancels a foreclosure sale, a newForeclosure Sale Scheduled event must be reported within 7 days from the datethe servicer learns of the new sale. 3. Results of Sale. Servicers must submit theevent to advise VA of the results of the foreclosure sale. 4. Confirmed Sale Date with No Transfer. Servicersmust submit the event to notify VA on all loans located in a confirmation statewhere they have received confirmation, but do not wish to convey the propertyto VA. 5. Transfer of Custody (TOC). Servicers mustsubmit the event to notify VA within 15 days of foreclosure, confirmation ofsale, or deed-in-lieu (DIL) of foreclosure if they wish to convey theterminated property to VA. 6. Invalid Sale Results. Servicers must submitthe event to notify VA if they have determined that the foreclosure sale wasinvalid so the property can be removed from VA’s inventory, if conveyed. 7. Improper TOC. Servicers must submit the eventto notify VA if custody was transferred in error so the property can be removedfrom VA’s inventory.
VA Servicer Handbook M26-4 Chapter 8 — 8.03
8.03 PRE-FORECLOSUREREVIEW a. Prior to loantermination, VA conducts a pre-foreclosure review of the loan to ensure thatthe borrower(s) have received every opportunity to retain homeownership, oravoid foreclosure. When a Foreclosure Sale Date Scheduled event is reported bya servicer, the VA Electronic Reporting Interface (VALERI) will open a Pre-ForeclosureReview process for review by the VA-assigned technician. VA loan technicianshave the ability to manually open a pre-foreclosure review process if they havebeen notified of a pending foreclosure sale. b. During VA’s review, if it is determined the loan is soluble, the assignedtechnician will proceed with taking action for possible loss mitigation, oralternative actions. Refer to Chapter 5, Loss Mitigation, of this handbook foradditional information on loss mitigation options.
VA Servicer Handbook M26-4 Chapter 8 — 8.04
8.04 NOTICE OFVALUE AND EXTENSIONS a. At least 30 days prior to the scheduled, oranticipated date of the foreclosure sale, the servicer must request that VAassign an appraiser to conduct a liquidation appraisal. If the property isvacant, the servicer must provide the appraiser access to the property. The Constructionand Valuation (C&V) section at the Regional Loan Center (RLC) ofjurisdiction where the property is located may reach out to the VA-assignedtechnician for assistance in contacting the servicer for access to vacantproperties. If state laws prevent the servicer’s ability to provide access toa vacant property, the appraiser must contact the C&V section of the RLC inthe jurisdiction where the property is located for approval to conduct anexterior-only report. An interior appraisal will no longer be required incases where the property was originally scheduled for foreclosure, and asubsequent compromise sale offer is made. The exterior-only liquidationappraisal will be sufficient to complete the Compromise Sale without anyfurther delays. The only exception to this rule is if the purchaser is aVeteran or surviving spouse. The liquidation appraisal is valid for 180calendar days from the date of issuance, however, the C&V section mayspecify a shorter validity period if rapidly-changing market conditions existin the area. Failure to order the appraisal timely, or a delay in providingthe appraiser access to a vacant property, may delay the completion of theforeclosure sale. b. If the servicer has a Servicer Appraisal Processing Program(SAPP) authority to process liquidation appraisals under 38 C.F.R. 36.4348, theappraiser will forward the liquidation appraisal report directly to theservicer for determination of fair market value. If the servicer does notparticipate in SAPP, the appraiser will forward the liquidation appraisalreport to the RLC of jurisdiction, for determination of fair market value. Ifthe servicer learns of any material damage to the property after the appraisalhas been completed, but prior to the foreclosure sale, the servicer mustcontact the C&V section of the RLC of jurisdiction for specific guidance. c. If the NOV will expire prior to the foreclosure saledate, the servicer may request an extension of the NOV by contacting the VA-assignedtechnician. A Servicing Officer, or Loan Administration Officer will generallygrant a 14-day extension in VALERI, as long as the following conditions apply: 1. The request is received prior to the NOV expirationdate. 2. The NOV extension request is received before theforeclosure sale. 3. The current occupancy status of the property, andexplanation as to why the extension is necessary has been provided. 4. No known extenuating circumstances exist that maydiminish the value of the property. d. Any requests that fall outside of these generalrequirements will be reviewed by VA on a case-by-case basis. If VA denies theservicer’s request to extend the validity period of the NOV, the servicer mustorder a new VA appraisal. e. The servicer will compute, and determine the bid type,and amount by taking the fair market value of the property, minus estimatedcosts incurred by VA in acquiring, and disposing of the property. The numberto be subtracted from the fair market value will be calculated by multiplyingthe fair market value by the current Net Value cost factor. The Net Value costfactor is published by VA in the Federal Register per 38 C.F.R. 36.4301. Current, and past rates for the Net Value cost factor can be viewed at: http://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp. f. The servicer is required to follow VA requirements,and comply with all federal, state, county, and local foreclosure laws whenscheduling, and carrying out a foreclosure sale. Once the foreclosure sale iscomplete, the servicer must report the Results of Sale event in VALERI. Thisevent will terminate all loans that are in a “guaranty issued” status exceptthose that are located in a confirmation/ratification state. Refer to the StateForeclosure Process, and Statutory Bid Information document located on theVALERI internet at http://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp. g. VA also requires servicers to report the type offoreclosure, either judicial, or non-judicial, in VALERI. The type offoreclosure is defined by state, county law, and is required to determine whatfees are allowable at time of the claim.
VA Servicer Handbook M26-4 Chapter 8 — 8.05
8.05 PRE-FORECLOSURE DEBT WAIVER (38 C.F.R.36.4326 (e)) a. A pre-foreclosure debt waiver is a complete releaseof VA’s right to collect a debt from the obligor, but does not restore theVeteran’s entitlement. VA reviews all type 2 loans, or any assumed type 6 loanfor potential waiver of debt. The following explains the difference between atype 2, and type 6 loan: 1. Loan Type 2. If the security for the loan isa manufactured home, and the loan was processed under the provisions of Title 38 U.S.C., Section3712, or if the security for the loan is not a manufactured home, and the loanclosed prior to January 1, 1990. 2. Loan Type 6. If the security for the loan isnot a manufactured home, and the loan closed on, or after January 1, 1990. b. A waiver of the debt may be warranted in instanceswhere the borrower’s financial ability would prohibit them from repaying anydebt established within a 6-year period. c. VA may deny a pre-foreclosure debt waiver in cases offraud, misrepresentation, or bad faith. 1. Fraud, and/or willful misrepresentation may haveoccurred when the, original lender obtained guaranty as a result of willful,and material fraud, or misrepresentation (e.g., borrower hiding unacceptablecredit, or submitting materially false information such as income, credit, ordeposit verification). 2. Bad faith occurs when a borrower refuses to work withthe servicer, and VA to pursue a loss mitigation option, and is in willfuldefault. In addition, should VA discover there was an unauthorized transfer ofownership, or the borrower allowed the transfer of ownership to an unqualifiedparty, these situations could be reviewed as possible reasons to establish abad faith debt (e.g., borrower does not have a financial hardship; however, dueto declining values on the VA-guaranteed property, the borrower purchased a newproperty within the same area, moved out, and willfully defaulted on the VAhome loan that resulted in a termination).
VA Servicer Handbook M26-4 Chapter 8 — 8.06
8.06 FORECLOSUREBID AND LOAN TERMINATION (38 C.F.R. 36.4322) a. The servicer calculates the bid amount using thetotal eligible indebtedness (TEI). For more information on how TEI iscalculated, refer to Chapter 14, Claims, of this handbook. b. There are two bid types the servicer may determine: 1. Total debt. The VA net value is greater than,or equal to the reported TEI. 2. Net value. The VA net value is lessthan TEI. c. If the net value of the home is $0.00, or less, theservicer should not bid more than the unguaranteed portion of the loanindebtedness at the foreclosure sale, unless there are competitive bidders, andthe servicer wants to acquire the property.
VA Servicer Handbook M26-4 Chapter 8 — 8.07
8.07 AUCTION SERVICE FOR THE TERMINATION OF VALOANS a. VA authorizes servicers touse an auction service in localities where available to legally complete thetermination of a VA-guaranteed loan through an auction sale as opposed to atraditional foreclosure sale. The servicer must comply with VA regulations, anddetermine the likelihood of increased sale proceeds. VA cannot recommend, oradvise which auction service to use. However, mortgage holders are accountablefor the “selected auction service’s” failures to follow all state and locallaws in addition to errors invalidating an auction sale. 1. The results of the auctionmust be equal to, or higher than Net Value, as VA will only apply proceeds ofsale equal to, or greater than Net Value to the guaranty claim. All propertieswill be sold “as is.” VA does not provide financing for properties sold byforeclosure sale or auction. 2. The terms, or conditions ofan agreement to sell the property via an auction sale are between the servicerand the auction service. VA does not maintain a direct relationship withauction services, nor does VA directly reimburse auction fees. b. Guidance to Servicers. 1. Priority of review. VAexpects servicers to exert all reasonable efforts to assist Veteran borrowers in retaining ownershipof their homes, or mitigating losses when retention is not possible. If theservicer has exhausted all loss mitigation efforts, and determines the loaninsoluble, they may use the traditional method of foreclosure, or an auctionservice to terminate the loan. 2. Appraisal. Mortgageservicers must obtain a VA appraisal to determine the “Net Value” at least 30 days prior to an auctionsale. The holder must request that VA assign an appraiser to conduct aliquidation appraisal to establish fair market value. The “Net Value Factor” isapplied to the fair market value to determine a Net Value bid. 3. Marketing. In order forauction expenses to be eligible for reimbursement on a VA claim, properties selected for an auctionsale will be marketed for a minimum of 15 days prior to the scheduled sale, andsold for an amount equal to, or greater than, the “Net Value Bid.” Mortgageservicers must ensure they employ a non-affiliated auction service to marketproperties to the greatest number of potential bidders possible. Auctionservices may use all marketing tools available including advertisement throughtelevision, radio, newspaper, and the internet to expose properties topotential buyers in multiple geographic regions. Marketing of the propertyshould be designed to alert the largest number of potential buyers, and providethose potential buyers a means to participate in the auction process. Amortgage servicer that employs an auction service meeting all VA auctionmarketing requirements will be eligible for reimbursement of auction fees on asuccessful sale without the actual calling or crying the sale. 4. Servicer reporting sale resultsto VA. Servicers will continue to report bid results to VA through the VALERI system.Servicers will report the amount of the highest bidder to VA on the “Results ofSale” event in the VALERI application. The credit to indebtedness must equal,or exceed the Net Value of the property securing the loan. 5. Servicer claiming fees relatedto termination through an auction service. VA reimburses servicers that utilizeauction services, and does not reimburse the actual auction service entity. Whena property is successfully sold at auction, VA will reimburse an “auction fee”up to 5 percent of the sales price at the time of claim submission. The“auction fee” will be reviewed by VA, and considered payable up to the maximumguaranty amount of the loan. When submitting the claim under guaranty, the feeincurred must be included as a line item expense. (a) When calculating the TEIfor a loan that will go through the auction process, the servicer mustcalculate the estimated auction fee using five percent of the Net Value bid, tobe included in the TEI. Failure to include the estimated auction fee withregular liquidation expenses could result in a Total Debt bid. VA does not paya claim under guaranty for Total Debt bids on properties not conveyed to VA. Ifan outstanding auction fee results from a Total Debt bid, the auction servicemust seek reimbursement from the mortgage servicer. (b) VA will not pay an “auctionfee” for homes offered at an auction sale, but not actually sold to a thirdparty. If a property is conveyed to VA in error after a completed auction sale,the property will be reconveyed to the mortgage servicer, and any acquisitionpaid, plus the costs associated with accepting, and maintaining property in theVA Real Estate Owned (REO) portfolio, will be collected from the mortgageservicer. 6. VA foreclosure timeframeswill not be extended to accommodate an auction sale. Mortgage servicers are expected toterminate insoluble loans in accordance with the State Foreclosure Process, andStatutory Bid Information document located on the VALERI internet at http://www.benefits.va.gov/HOMELOANS/servicers_valeri.asp, and not increase the liability of the Secretary whenliquidation is the most prudent course of action. The decision whether topursue a second auction sale, or to proceed with a traditional foreclosure toterminate a loan is not mandated by VA.
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