VA Servicer Handbook M26-4 Chapter 13
VA Servicer Handbook M26-4 Chapter 13, verbatim from VA KnowVA (article 554400000314382, updated Dec 16, 2025).
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Verbatim regulatory text
Verbatim provisions from VA Servicer Handbook M26-4 Chapter 13 — 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 13 — 13.01
13.01 INDEMNIFIED LOAN AGREEMENTS a. An indemnification agreement (IA) may be established when it is determined egregious underwriting was conducted by the originating lender. Audit reviews are performed by VACO Quality Assurance or the Loan Production (LP) section at the Regional Loan Center (RLC) of jurisdiction when completing a full review. The IA is prepared by VACO for specified loans or subsequent VA interest rate reduction refinancing loans that go into default, as defined in 38 CFR 3601, within 5 years of the date of guaranty to establish reimbursement for any loss incurred. b. Any servicer who accepts transfer of servicing rights on the loan will be allowed to transfer property and convey a title to VA and receive a claim payment. VA will pursue the originating lender for reimbursement of losses incurred as a result of the termination action. If the servicer of the loan is the originating lender, VA will not accept custody or pay a claim under guaranty.
VA Servicer Handbook M26-4 Chapter 13 — 13.02
13.02 INDEMNIFICATION REQUIREMENTS a. Indemnification shall be made in accordance with the following terms: 1. Where, as of the date of signing of an IA, a claim under guaranty has not been submitted to VA, the property will not be conveyed to VA and no claim under guaranty shall be submitted by the original lender. All VA requirements for servicing and payment of loan fees will be observed in respect to such mortgage. In the event of a claim under guaranty from a transferee of a mortgage covered by this agreement, indemnification will be in accordance with paragraph (b) or (c), whichever applies. 2. Where a VA guaranty claim is pending, or has been paid in full and the property is owned by VA, reconveyance of the property will be accepted by the servicer and indemnification will be made to VA for its investment. VA's investment includes, but is not limited to: the amount VA paid to the servicer when the servicer conveyed the property to VA; the full amount of the guaranty claim; all taxes and assessments; all maintenance and operating expenses, including costs of rehabilitation and preservation of the property; and all sales expenses, where applicable. In the event VA does not reconvey the property to the servicer, VA's loss will be calculated in accordance with paragraph (c). 3. Where a VA guaranty claim has been paid in full and the property has been sold by VA to a third party, the amount of indemnification is VA's investment as defined in paragraph (b), minus the sales price of the property. b. In the event that VA determines that reimbursement is due from the servicer under the terms of the agreement, VA will submit a request to the servicer via certified mail. The servicer must remit funds to VA within 30 days from the date of the letter. If full payment is not received timely, the servicer will also be liable for interest on any unpaid balance from the date of the letter until the date the payment is received by VA. The interest rate is determined by the Secretary of the Treasury pursuant to section 11 of the Debt Collection Act of 1982 (31 U.S.C. § 3717) representing the current value of funds rate used in assessing interest on debts due to the United States. c. Any material breach of the terms and conditions of the agreement shall constitute independent grounds for imposing administrative sanctions by VACO against the servicer pursuant to 38 C.F.R. Parts 2 and 36.
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