Deciphering the VA Lender’s Handbook Chapter 5 Part 7
The last article focused on the requirements for a VA loan assumption to be approved, the expectations for processing times, and that the decision from either the loan servicer/holder or the VA will come as either an approval or disapproval. In this article we’ll be focusing primarily on how you can appeal a disapproval on your application for an assumption, as well as what to do after an approval has been obtained, whether through appeal or after the first application. After reading this article, you should know more about appealing a disapproval on a VA loan assumption and what to do after an approval has been granted.
First, to appeal a disapproval decision the seller and purchaser must do so within 30 days of getting the disapproval notice. The seller and buyer can request an appeal through their loan servicer, who can instruct them on how to submit the request. After 30 days, the seller and buyer do not have the option to appeal the decision. After the VA’s receives an appeal request, they give the servicer 7 days to provide a copy of the original assumption application package that was disapproved. The VA reviews the application again and decides either to approve the application on appeal or uphold the original disapproval.
Not to worry, though, for even if the disapproval is upheld, the seller can request “special approval” within 15 days of receiving the verdict from the appeal. Special approvals are turned around fairly quickly; the VA gives themselves 7 days after receiving the request to make a determination. Special approval is only granted in a few circumstances, such as the seller agreeing to remain secondarily liable on the loan following assumption, the seller is unable to otherwise continue payments on the loan, or reasonable efforts have been made to find a creditworthy borrower for the property. Sometimes it can take a combination of those things.
Assuming you’ve gotten your assumption approved (pun intended), there are several steps that need to be taken. Much of the work is done by the servicer of the loan, but you’ll find that you as the seller or borrower have some work involved as well. The first step is for the seller and buyer to sign the Assumption Clause along with the deed that conveys the property to the buyer. The loan servicer will provide the seller with the exact language that needs to be on the Assumption Clause. After both the seller and buyer have signed it, it is the seller’s responsibility to return a copy of the entire deed that shows the date and place of recordation to the servicer. At that point, the servicer reviews the document to make sure it contains the properly worded Assumption Clause and that it is legally sound.
The second step listed in the Handbook is to prepare an agreement creating liability. However, this step needs only be completed if a copy of the assumption clause has not been given to the servicer. This is a step the servicer will take and that the seller and buyer are legally obligated to comply with. The servicer will send three copies of an “Agreement Creating Liability to Holder and to the United States” to the seller with instructions on what to do with them. The documents must be properly completed and returned to the servicer, who will review them to ensure completeness and accuracy.
The third step is for the buyer to pay the VA loan funding fee, unless he or she is exempt from it. The fee must be paid to the VA within 15 days of the date of assumption. The buyer should use the VA Funding Fee Payment System to make payment. Speak with the loan servicer for clarification on whether the buyer is exempt from the funding fee. Generally veterans who are receiving or are eligible for disability compensation are exempt, as well as a surviving spouse of a veteran who died in service or due to a service-connected disability. The fourth and final step is to notify the VA that the assumption is complete. This is a step that the servicer will take and should not require the seller or buyer’s direct involvement.