CHAPTER 9. MORTGAGE LOAN ACCOUNTING
SECTION A. GENERAL
9A.01 PURPOSE
a. The purpose of this chapter is to prescribe uniform accounting policy and procedures to be applied in (1) processing and recording financial transactions relating to the guaranteed, insured, and direct loan programs of the VA and (2) preparing and submitting reports as required by Central Office. Adherence to the policy and procedures prescribed herein is mandatory for each regional office/center with loan guaranty activities, and the DPC (Data Processing Center) concerned with the [loan guaranty accounting systems. These systems are:
(1) LCS (Liquidation and Claims System)
(2) PMS (Property Management System)
(3) PLS (Portfolio Loan System)
(4) GLS (General Ledger System).]
b. This chapter also prescribes (1) the general ledger and analytical accounts, account descriptions, pro forma entries, accounting transaction types and entries generated, general ledgers, journals and distribution registers required for loan accounting, and (2) the method of controlling punched cards and documents transmitted to the DPC and to verify and control documents received form the [computer systems.]
9A.02 RESPONSIBILITIES
a. Directors or Managers, through their Fiscal Divisions, are responsible for installation, operation, and augmentation of the accounting system at station level. It is the responsibility of each station to adapt the system to fit special circumstances encountered and, when necessary, to make decisions on technical accounting matters requiring the application of a comprehensive knowledge of accounting as well as a thorough understanding of the objectives, functions, and organizatinal structure of the VA.
b. Accountants at field stations are responsible for rendering technical advice on all phases of accounting data and also recommending the form and content of financial statements for use by local management.
c. Accountants are responsible for the determination and verification of the final indebtedness to be collected from the veteran on account of a defaulted guaranteed, insured, or direct loan.
d. Accountants will acquire a working knowledge of title III of the Servicemen's Readjustment Act of 1944, as amended, VA regulations, opinions rendered by the General Counsel, decisions of the Comptroller General, and State and local laws pertaining to financial aspects of mortgage loan accounting.
e. Accountants are responsible for analyzing any initial or irregular transactions which present procedural problems, and, when such analysis discloses that a transaction is not sufficiently covered by existing procedures, they should develop an appropriate method of accounting therefor. The development of local procedures to properly account for these transactions will be consistent with the policy contained herein and established accounting techniques for loan accounting operations based on acceptable professional practices.
f. The accounting functions of the mortgage loan accounting program will be under the supervision of the Fiscal Officer.
9A.03 ACCOUNT NUMBERING
a. The general ledger accounts for mortgage loan accounting transactions consist of a basic fourdigit number prefixed by a two-digit fund designation to identify the program. The two-digit fund designation for guaranteed and insured loan transactions is "46" and for direct loan transaction, "44."
b. The accounts are numbered in the accepted numbering pattern of asset accounts in the 1000 series, liability and accountability accounts in the 2000 series, income accounts in the 3000 series, expense accounts in the 4000 series, budgetary accounts in the 5000 series, interoffice accounts in the 6000 series, and statistical accounts in the 7000 series.
c. For management purposes some of the general ledger accounts will be broken down into analytical classifications. The classification will be based on the type of transaction which necessitates the entry, such as [1161.01] "Vendee Accounts and Advances, Balance Deferred at Time of Sale" or [1161.02] "Vendee Accounts and Advances, Repayments of Principal." The account descriptions contained in the departmental supplement will indicate the accounts to be maintained by the above classifications.
d. Accounts prescribed for guaranteed, insured, and direct loan transactions are the minimum required to present overall agency operations. In accordance with basic VA policy, accountants are encouraged to augment the account structure wherever necessary to meet the needs or desires of local management. However, such implementation must be susceptible of consolidation into the prescribed account structure for Central Office reporting requirements.
9A.04 FINANCIAL REPORTS
The prescribed financial reports to be submitted to Central Office for guaranteed, insured, and direct loan operations are contained in section H.
9A.05 STATUTORY REQUIREMENTS
In addition to compliance with the overall statutory requirements listed heretofore, it is also necessary that the provisions of the Servicemen's Readjustment Act of 1944, as amended, be observed.
SECTION B. RECORDS OF ORIGINAL ENTRY
9B.01 GENERAL
The records of original entry will consist of prescribed journals, registers, journal vouchers, forms, and memorandums of transactions pertaining to the loan accounting programs. All entries resulting from such transactions will be entered in such a manner as to show sufficient descriptive data necessary to provide a record and complete explanation of each transaction. The records of original entry will constitute the supporting posting media for the general ledger.
9B.02 DISBURSEMENTS
Generally, disbursements in connection with the mortgage loan programs will be made from the Loan Guaranty Revolving Fund VA 36X4025 for guaranteed and insured loans and from Direct Loans to Veterans and Reserves 36X4024 for direct loans. Certain disbursements are made from the General Operating Appropriation and are not reflected in the general ledger accounts of the loan accounting funds. Among these latter disbursements are payments for lockbox keys, fees incurred in obtaining credit reports for veterans' liability and receivables-miscellaneous accounts, and costs of appraisals on acquired properties.
9B.03 RECEIPTS AND DISBURSEMENTS JOURNALS
a. Cash Receipts and Disbursements Journal. A separate journal will be maintained for 36X4024 and 36X4025 to reflect all cash receipts and disbursements for each program. A separate cash receipt journal and disbursement journal may be used for either program if found to be more practicable. [A separate register should be kept for appropriation 36X3880 (GOE) for Treasury chargebacks where the receivable is in appropriation 36X4024 or 36X4025.]
b. Disbursing Authority Journal. A disbursing authority type journal may be used for either program in recording all transactions which affect the disbursing authority accounts. This type journal may be more desirable for 36X4025 as an additional control along with the allotment ledger in order to preclude the submission of disbursement schedules to the Treasury Department in excess of available disbursing authority.
9B.04 JOURNAL VOUCHERS
All noncash entries and adjustments to the accounting records will be supported by journal entries prepared on [OF] 1017G, [Journal Voucher,] unless specifically otherwise provided. Each entry will be fully explained and documented. Journal vouchers will be numbered in a separate sequence established for each of the loan accounting programs and will be approved by the Chief, Accounting Section.
9B.05 [(DELETED BY CHANGE 42.)]
SECTION C. RECORDS OF FINAL ENTRY
9C.01 GENERAL LEDGER
The general ledger accounts for the loan accounting programs will be maintained by the GLS (General Ledger System) so as to facilitate posting and the preparation of separate trial balances. General ledger accounts established for the loan programs may be maintained on a continuing basis regardless of fiscal year. (See sec. R for GLS description.)
9C.02 SUBSIDIARY ACCOUNTS
Subsidiary accounts will be established in each of the loan programs for each portfolio loan, property acquired, veterans' liability account, miscellaneous receivable, suspended credit, tenants' account, undistributed disbursements and undistributed collection account controlled by analytical general ledger accounts. Specific documents used to establish subsidiary records and entries thereto vary according to the type of subsidiary. For example, appropriate [PLS] code sheets are used to establish portfolio loan subsidiary and VA Form 26-6727, Notification of Tenancy or Changes Therein, used to establish a tenant account. However, any document used as the medium for recording to journals or ledgers and containing complete descriptive information for account being recorded may be the source of posting to subsidiary record.
9C.03 BALANCING SUBSIDIARY ACCOUNTS WITH GENERAL LEDGER
a. The subsidiary accounts will be balanced at least monthly to the related basic general ledger account. Any difference between the amount shown in the general ledger and that shown by the subsidiary accounts will be identified and adjusted immediately.
b. As subsidiary accounts may be maintained in the system or locally at field stations, various methods of balancing subsidiary accounts with the related general ledger account are required. In any case, a listing of the subsidiary account balances will be prepared as of September 30 each year, except for subparagraphs f and g below. For those accounts where a listing is required, the term "listing" refers to a list which identifies the individual subsidiary account and indicates the amount of each account. For all other months, an adding-machine tape of the subsidiary accounts, or end-of-month computer runs will be used to reconcile the subsidiary and control accounts.
c. Subsidiaries Maintained by the System. The following subsidiaries are system maintained within applicable master records and must be reconciled with general ledger balances at least monthly:
SYSTEMS
Description PLS LCS PMS
. (Portfolio (Liquidation & (Property
Loans) Claims) Management)
(1) Loans Receivable 4_1161
(PLS) . . .
4_1163
[.]
4_1167
441171
4_1172
(2) T&I Escrow 4_2015.00
(3) Suspended Credits 4_2085.09 4_2085.02
(ADP)
. . . 4_2085.03
. . . .
(4) Veterans Liability 461162.25-.27 .
Claims & Acquisitions inclusive and .
Receivable 461162.32 .
.
(5) Capital Value (PM) 4_1726
. 4_1821
. (Except .12)
(6) Expenses Paid (PM) 4_4072.01.08
. inclusive [&
. 4_4111.01,
. 4_4111.03,
. 4_4111.06]
(7) Rental Income (PM) . . 4_3382
NOTE: System will provide daily summary totals and listing at EOFY. EOM listings will be system-generated for 4_2085.09, 461162.25, and 461162.26.]
d. Loan Receivable Subsidiaries Not Maintained in PLS. The following subsidiaries will require manual maintenance with EOM addingmachine tapes and manual listing EOFY:
461164
e. Balances at EndofMonth. The following general ledger accounts are not maintained by computer system and will require station action to reconcile at least monthly. Addingmachine tapes are required EOM and a listing EOFY:
SYSTEMS
PLS LCS PMS
Description (Portfolio (Liquidation (Property
Loans) & Claims) Management)
(1) Collections
(a) In Transit 4_1036
(b) Undistributed 4_2084
(c) Sales Proceeds 4_1225
(d) Suspended Credits 4_2085*
(2) Disbursements
(a) Undistributed (ADP) 4_1181.01 4_1181.02 4_1181.03
(b) T&I Escrow 4_2101
(c) In Transit 4_2038
(d) Advances for Bidding 4_1114
(e) Pending (ADP) 4_2036
(f) Construction 442014
(3) Accounts Receivable
(a) Claims Receivable -
Veterans Liability 4_1162
(b) Miscellaneous 4_1222
(c) Canceled checks 4_1216
(4) Miscellaneous
Asset Transfers 4_1182 4_1182 4_1182
*Except .02, .03, .09
f. System Accruals EOM With Automatic System Reversals. The following general ledger accounts are system accrued each EOM and automatically reversed by the system in the subsequent month:
SYSTEMS
Description PLS LCS PMS
(Portfolio (Liquidation (Property
Loans) & Claims) Management)
(1) Interest owed
(a) Vendees (Nontrust) 4_1611
(b) Mortgage loans and
advances (Nontrust) 4_1612
(c) Mortgage loans and
advances (Trust) 441616
(d) Vendee Accounts
(Trust) 4__1618
(2) Late charges owed
(a) Mortgage loans
and advances 4_1621
(b) Vendee accounts
and advances 4_1622
(3) Allowance for unsold
properties 4_1822
SYSTEMS
PLS LCS PMS
Description (Portfolio (Liquidation (Property
Loans) & Claims) Management)
(4) Claims and 46 1162.27
Acquisition 46 1162.32
Payments* 46 5227.00
(5) Rental Income 4_1619.00
(6) Sales 4_4111.04
Commissions 465227.00
*Accrual for Claims: LCS TT 536 (field KF) less TT 540 (field -LC)
Accrual for Acquisitions: PMS TT 606 (Title Status 3) less TT 540 (field LB)
g. Other Manual Accruals. The following EOM accruals in PMS will require manual computation, listing, and posting to GLS via TT 901(s). Manual reversal in GLS in subsequent month is required:
4_1821.12
4_ 4072.09
4_4072.10
[h. Reporting OutofBalance General Ledger and Subsidiary Accounts
(1) Where subsidiary accounts are outofbalance when the trial balances are prepared, prompt actions will be taken to reconcile the balances and effect necessary corrections. If the differences are not reconciled by the close of the month in which the trial balance is submitted to Central Office, this fact will be reported to the Office of Budget and Finance (Controller) (047D3) through the appropriate region field director.
(2) The report will be in the form of a letter and will contain the following items together with any other information considered pertinent:
(a) The general ledger account number(s) involved, identified as to appropriation or fund, for which the subsidiary records are out-of-balance.
(b) The amounts as shown for each account (total of subsidiary records and the general ledger account balance), and the exact variance.
(c) Date the accounts were last in balance.
(d) The extent of efforts made to reconcile the accounts, to include manhours expended, etc.
(3) Subsequent reports of the above out-of-balance accounts will be submitted at the end of each month until the accounts have been balanced. These subsequent reports will reflect a summary of the efforts and progress made to reconcile the differences and will include information as specified in subparagraph h(2) above, for any accounts which remain out of balance. A final report will be submitted promptly after all accounts have been reconciled.]
SECTION D. COLLECTIONS
9D.01 RECEIPT AND HANDLING OF REMITTANCES
a. Receipt of Portfolio Loan Payments. All portfolio loan payments received on direct loans, acquired loans and vendeee accounts will be processed in accordance with collection procedures prescribed in MP-4, part I, chapter 6.
b. Receipt of Other Than Portfolio Loan Payments. Rental payments and other payments not pertaining to portfolio loan accounts will be transmitted directly to the agent cashier. (See MP-4, pt. I, for agent cashier instructions.)
c. Uncollectible Items
(1) Uncollectible remittances pertaining to portfolio loans will be processed in accordance with MP-4, part I, chapter 6.
(2) Uncollectible remittances for other types of accounts will be reported to the Loan Guaranty Division by the agent cashier for disposition instructions. VA Form 46481, Notice of Mortgage Loan Remittance, may be used as a notice to Loan Guaranty of an uncollectible check; however, locally reproduced forms may be used where preferred. (See MP4, pt. I, for other instructions.)
d. Automatic Redeposit of Checks
(1) MP-4, part I, chapter 6 provides instructions for a one-time automatic redeposit of uncollectible checks pertaining to portfolio loan accounts.
(2) Field stations may make similar arrangements with their depositary for uncollectible checks pertaining to other than portfolio loan accounts except that uncollectible checks pertaining to application fees and earnest money will be excluded from any automatic redeposit arrangements. Checks for these latter two categories will be specially endorsed as follows: "DO NOT REDEPOSIT."
9D.02 COLLECTIONS FOR REFUND TO APPROPRIATIONS
a. Refund for Administrative Expenses. Collections received representing refunds of appraisal fees, credit report fees, or other items originally paid from the current appropriation for administrative expenses will be returned to such appropriation.
b. Refund to Revolving Fund Accounts-36X4024 and 36X4025. Collections received representing refund of items in connection with transactions resulting from guaranteed, insured, or direct loans will be deposited directly to Revolving Fund Accounts 36X4024 and 36X4025 as appropriate.
c. Refund to Readjustment Benefits Appropriation for the Paraplegic Program. Collections received representing refund of items disbursed in connection with the paraplegic program will be deposited directly to appropriation 36X0137. [ ]
SECTION E. PORTFOLIO LOANS-GENERAL POLICY
9E.01 APPLICATION OF INSTALLMENTS AND OTHER PAYMENTS
a. Installment Payments. Payments received on mortgage loan accounts will be applied to the accounts in the following manner, unless the terms of the loan instruments require a different application:
(1) Current Account
(a) Tax and insurance account.
(b) Accrued interest due.
(c) Principal.
(2) Delinquent Account
(a) Oldest unpaid installment in the following priority: T&I, interest, principal, advance, and late charges.
(b) Next oldest unpaid installment(s) unpaid until payment is completely applied to the account with the same priority as subparagraph (2) (a) above.
(3) Final payment, prior to foreclosure, will be applied in accordance with local law, upon receipt of advice from the District Counsel.
b. Advance Installment Payments. If the borrower so requests, the Finance activity may accept an advance payment in the amount of one or more monthly installment payments, which will be deposited immediately and applied to the loan account by crediting the tax and insurance, interest, and principal balances as though received on the regular installment due date.
c. Prepayments. Unless prohibited by the terms of the loan instrument, the Finance activity may accept prepayments which will be applied to principal only.
d. Classification of Principal Payments. In order to accumulate data relating to paid in full loans, analytical accounts .13, .14 and .15 are provided for use in classifying the principal repayment portion of installments. The following criteria will be used to record principal payments:
(1) Repayments in Full. All loans paid in full with the final payment being in an amount of less than two monthly installments will be recorded in analytical account .14.
(2) Prepayments in Full. All loans being paid off with the final payment being in an amount equivalent to two or more monthly installments will be recorded in analytical account .15.
(3) Repayments-Other. All repayments not classified as .14 or .15 as shown above, will be recorded in analytical account .13.
9E.02 ACCRUALS OF INTEREST
a. Accrual of Interest
(1) Installment Accrual. As the installment due date on the account is reached, the system automatically generates TT 096 to insert the unpaid installment (T&I, interest, principal) into the applicable accrual segment provided record condition does not preclude accrual.
(2) Loan Establishments. Based upon data coded into TT 050 (or TT 150 for construction loans) the system will accrue applicable interest owed. See paragraphs 9N.07, 9N.08 and 9N.09 for detailed instructions regarding interest accruals, collection and recording for new loan establishments.
(b) Interest Convenience Period. An interest convenience period shall be allowed each borrower which will equal the When Paid factor.
(1) Payment Receipt Date. Payments received prior to the due date of the succeeding installment shall be credited to the loan account as though received on the installment due date without interest charge for the delinquency.
(2) Loans on Which Installment Payments Are Due Other Than Monthly
(a) Where installment payments are due on other than a monthly basis, (i.e., quarterly, semiannually, annually) the borrower will be allowed an interest convenience period which equals the "When Paid" factor:
(l) When Paid 2 (quarterly)-3 months;
(2) When Paid 3 (semiannual)-6 months;
(3) When Paid 4 (annual)-12 months.
(b) Payments received on or prior to expiration of the interest convenience period will be credited as though received on the installment due date without interest charge.
(c) Deleted by change 2.
(d) Monthend Accruals. As of the end of each calendar month, the total interest due and not paid on portfolio loan accounts and late charges unpaid will be furnished automatically by the PLACE system. Accruals will be journalized in the station's appropriate general ledger accounts for statement purposes only and will be reversed on the first day of the succeeding month.
(e) Computation of Interest
1. Beginning and Ending Dates of Interest. In a typical loan closing, interest will be charged for the day of loan closing (unless the document specifies some other date for the commencement of interest), but interest will not be charged for the day of repayment or, where the loan is sold, for the day of sale or repayment. Further, where interest is referred to as being "from" a date or event, and "to" a date or event, interest is charged for the "from" date but is not charged for the "to" date.
2. Yearly Basis. Interest will be computed on the basis of a 365day interest year.
(f) Accrual of Interest on Direct Construction Loans (Stage Payment)
1. Where the direct loan is to be disbursed as work progresses, interest will be accrued manually at the contract rate on each disbursement from the date the voucher is scheduled for disbursement. The interest accrual shall be payable monthly (or as otherwise determined) in advance of the first regular amortization payment on the loan. This requirement will be brought to the veteran's attention specifically, and appropriate language for accomplishing the requirement will be included in the loan instruments.
2. Except as provided above in respect to the payment of interest, the date for the first regular amortization payment may be a date not exceeding 12 months from the date of the note, or not exceeding 1 month after the estimated completion date, whichever is earlier.
9E.03 ADVANCES FOR ACCOUNT OF BORROWER
Advances made for the protection of the property will be paid from 36X4025 or 36X4024, as applicable, and will be specifically identified on the voucher by including the words "Advance for" in the legend under "Articles or Services." The amount of the advance will be added to the principal balance of the loan. [The system will accrue interest on the next installment accrual in the normal manner on the new principal balance.] The Finance activity will be advised by the Loan Guaranty Division as to the terms of the agreement for repayment of the advance. Repayments of advances will be applied in the same manner as regular installment payments with respect to principal and interest.
9E.04 TAX AND INSURANCE ESCROW ACCOUNT
a. Establishment and Maintenance. The security instrument executed in connection with the sale of an acquired property or the making of a direct loan generally provide that the borrower shall make monthly payments to VA for the purpose of accumulating sufficient funds for the payment by the VA of taxes, ground rents, special assessments, and other similar items, and for insurance premiums, as they fall due. The individual records relating to these funds will be maintained by the PLACE system which will record all collections and disbursements from the tax and insurance funds (general ledger account 4_2015). The records relating to these funds will be referred to as the "tax and insurance account " Advice as to whether a tax and insurance account is provided for by the security instruments or has been waived under existing procedure will be provided by the Loan Guaranty activity. If an account has not been waived, the monthly payment data will be entered on the mortgage loan PLACE master record. Advice of any subsequent adjustments in the amount of the monthly payment or of the subsequent waiver or discontinuance of the tax and insurance account will be furnished by processing appropriate PLACE input data (TT 160).
b. Deposit of Tax and Insurance Funds. Deposits to the tax and insurance account will usually consist of the following types of collections or credits:
(l) The lump-sum collection for taxes and insurance to be credited to the borrower's tax and insurance account as a part of the sales closing.
(2) The pro rata share of taxes chargeable to VA upon the sale of property and considered a property expense (sales adjustment). In no downpayment or no closing cost sales, the sales terms may provide that the portion of the tax and insurance deposit normally required as a cash deposit from the purchaser will be absorbed by the VA. In such cases the amount deposited to tax and insurance without collection from the borrower will be charged to sales expense (sales adjustment).
(3) That portion of the monthly installment specified for deposit to tax and insurance account.
(4) Additional amounts requested by Loan Guaranty Division to adjust a shortage in the current tax and insurance balance.
c. Disbursements From Tax and Insurance Account. Disbursements from the tax and insurance account will be processed upon receipt of a voucher from Loan Guaranty authorizing such payments. If, after processing in the PLACE system, it is found that the charge exceeds the credit balance in the borrower's tax and insurance account, the Loan Guaranty Division will be notified of the purpose and amount of advance through system output. The borrower will also be notified of the advance on the monthly billing and will generally be requested to repay it as a lump sum amount unless other arrangements have been made by the Loan Guaranty Division. Such advances must be entered to the allotment ledger accounts in the loan [guaranty] or direct loan program as appropriate.
(l) Advances-Installment Payments
(a) Interest on [tax and insurance] advances will commence the date the advance was [processed on the master record of the loan account.] Normally, the system will automatically insert the amount of the advance into advance #l or advance #2 field of the master record (par. 9N.27m). Also, the system normally computes interest on the advance to the next cycle date and inserts the advance amount and applicable interest into the installment accrual segment.
(b) For those cases where the advance was made but the master record was not properly updated, the Finance activity will be required to take coding action to insert advance data and installment segment data into the master record. If RPO 61 is received, this indicates an advance was made and added to principal but the advance and delinquent segments were not updated. For RPO 61 cases (VA Form 48431 will be used), the following action will be taken by the accounting activity to process TT's 096 and 156:
1. Code loan identification and TT 096 as follows:
Field Card
Designator Columns Comments
-WB (20-25) Code 6 digits for segment month/year. Code the
current (most recent) accrual existing on the
loan. (Do not create a new installment accrual
segment.)
-WD (32-37) Code 6 digits for interest amount representing
accrued interest on the advance from date of
disbursement to the next cycle date (precede with
zeros if applicable)
-WF (45) Code 1 digit for proper advance number, (1 or 2 is
valid).
and
(46-51) Amount of the advance, (6 digits)
and
(52-57) date of advance, (monthdayyear) (6 digits) (i.e.,
120175).
(58) and
reason for advance (1 digit)
1. Taxes
2. Insurance
3. Taxes and Insurance
4. Special Assessment
5. Taxes and Special Assessment
6. Insurance and Special Assessment
7. Taxes, Insurance and Special Assessment
NOTE: Advance field (cc's 45-58) must be
completely coded with data.
2. Using another VA Form 48431, code loan identification
and TT 156 as follows:
Field Card
Designator Column Comments
-WF (4558) Code same data as shown in field -WF as coded in
TT 096 above. Remember to code the entire field.
3. Forward completed code sheets to Control Point for processing.
9E.05 INSURANCE LOSS PROCEEDS
Remittances received representing insurance settlements as a result of loss or damage to the security property will be held by the agent cashier, and the Loan Guaranty Division advised thereof in the manner provided in MP4, part I. If the Loan Guaranty Division advises the remittance is acceptable for deposit, it will be deposited to 36X4025 or 36X4024, as appropriate, and posted to general ledger account 4_2085.3. A suspended credit ledger will be established in the name of the borrower pending receipt of VA Form 266820 as to final disposition. If the Loan Guaranty Division advises that the check is to be forwarded to the insured, then the remittance will be endorsed by the agent cashier and forwarded to the insured in accordance with M263.
9E.06 WITHHOLDINGS FROM BENEFIT PAYMENTS
a. Withholdings may be made from compensation, insurance dividend, and pension payments to apply on monthly installment payments of a mortgage loan account provided the action is requested by the borrower. Preferably, the withholding should be in an amount equal to the monthly installment; however, an amount less than a full installment may be accepted if it is in the best interest of the Government.
b. Withholdings from benefit payments will not be made to collect defaulted installment payments without the prior written consent of the veteranborrower.
c. When portfolio loan deductions are being made from compensation and pension benefits under the C&P automated system and the compensation and pension award is discontinued, suspended, or otherwise reduced to preclude the deduction, a VA Form 206560, Notice of Benefit Payment Transaction, will be received from the Hines DPC. Upon receipt of this message, it will be forwarded to the Loan Guaranty Division which will promptly make necessary arrangements for cash collections to be submitted by the borrower.
d. For a detailed description of the tapetotape VA system, see MP-4, part I, chapter 6, section F.
9E.07 PAYMENT IN FULL OF LOAN ACCOUNTS
a. Request for Statement of Account. On the basis of a request from the borrower or an authorized representative of the borrower, the Finance activity will prepare a statement of account to be used for the purpose of payment in full. The statement will be furnished to the Loan Guaranty Division for their use in arranging the liquidation of the loan. (See par. 9N.27i.)
b. Receipt of Payment in Full. The loan account will be closed upon the receipt of funds sufficient to pay the principal balance, including advances plus interest accrued, plus unpaid late charges, less amount of credit balance in tax and insurance account. Interest will be collected up to the date the payoff remittance is received by VA. The borrower is asked to include interest for 2 days when submitting the remittance by mail. In calculating the actual payoff amount, therefore, the payoff remittance will be considered as having been received no more than 2 days after the date of postmark.
c. Overpayments or Underpayments on PaidinFull Accounts. Due to the administrative cost of collecting underpayments or processing vouchers for refunding overpayments, the VA is authorized to retain overpayments or refrain from efforts to collect underpayments of loan accounts, provided such amounts do not exceed $10 in any individual case. The foregoing is applicable to accounts wherein the borrower requests permission to make payment in full prior to maturity date or upon making the final payment at maturity.
9E.08 TRANSFER OF TITLE BY BORROWER
Loan Guaranty activity will advise the Finance activity of any transfer of ownership in the following manner:
a. Prepare VA Form 268384A, Portfolio Loan Name Change Code Sheet (PLACEARS), coding TT 115, using field -AF for transfer of title date.
b. Prepare VA Form 268382A, Portfolio Loan Address Code Sheet (PLACEARS), coding TT 135.
NOTE: Copies of the above forms will be forwarded to the Accounting activity.
c. The loan account number will not be changed; however, the following master record change will be completed: Correct taxes and interest paid 1/1 to date segment totals, if applicable, to show new owner's share (TT 091).
9E.09 ADVICE OF DELINQUENT PORTFOLIO LOAN ACCOUNTS
The system will provide the Loan Guaranty Division sufficient data regarding delinquent accounts through the following means:
a. RPO 66-Payment received on a delinquent loan in default, or on a new loan 5 days delinquent;
b. ARS daily output messages detailing payments received on defaulted loans;
c. EOM listings showing loans in default; and
d. RPO 60-Loan became a reportable default, or accrual made on reportable default account.
9E.10 EXTENSION, REAMORTIZATION OR SUSPENSION OF INSTALLMENT PAYMENTS
a. Advice will be furnished the Finance activity on VA Form 266820 of the extension, reamortization, suspension of installment payments, or any other change in the terms of the installment contract or security instrument. Future accruals will be governed by the contract terms as changed. Upon receipt of advice from the Loan Guaranty Division of an extension or reamortization in which the unpaid interest and/or late charge to be added to the principal balance, a transaction type 004 will be processed to add the capitalized amounts directly to the principal balance of the loan. (See par. 9N.28 for coding and appendix L-8 for accounting entries.)
b. Generally, the borrower will be required to deposit sufficient funds to bring the tax and insurance account up to the level it would have been had the installment payments been made when extending a loan account by means of a formal written extension agreement. However, where the borrower, for reasons beyond his control, has become seriously in default, it will be permissible to advance funds to the tax and insurance account. The Loan Guaranty Division will furnish Finance VA Form 266820 clearly indicating the amount to be advanced to the tax and insurance account that has been included in the indebtedness extended. The amount of the advance will be added to the principal balance of the loan as well as to the tax and insurance account (TT's required: 004, and 064. See par. 9N.28 for coding.
9E.11 FORECLOSURE AND ACQUISITION COSTS
a. All costs incurred in connection with the foreclosure of a mortgage loan account or the acceptance of a deed in lieu of foreclosure, which are chargeable to the borrower, will be added to the principal balance due.
b. If the loan account is active (LSCC 5), the loan account will be charged for the amount of this expense, coding VA Form 48431, Portfolio Loan Accounting Code Sheet ([PLS]-ARS), using TT 024, which will be processed in the normal manner.
c. If the loan account has been terminated (LSCC is 7 or 9), the necessary general ledger account(s) will be charged when processing the VA Form 41423, Voucher and Schedule of Payments. Do not introduce TT 024 or TT 096 to up-date the master record.
d. In those cases where the foreclosure action relates to both the FHA acquired loan and the 505(a) acquired loan, the foreclosure costs chargeable to the borrower will be debited to account 1163.33, Mortgage Loans and Advances-Subsequent Principal Charges-FHA Loans. If the foreclosure costs are not chargeable to the borrower and should be assumed by VA, the voucher will be debited to account 4011, Operating Expense-General.
9E.12 ATTORNEY FEES IN VA FORECLOSURE ACTIONS WHEN THE SERVICES OF THE
DISTRICT COUNSEL'S OFFLCE ARE UTILIZED
a. When the services of salaried employees of the District Counsel's office are utilized in foreclosure actions by the VA on certain portfolio loans, an amount may be chargeable to the indebtedness. The Finance activity will be advised by the Loan Guaranty Division of any costs of salaried employees to be charged to obligors accounts. The amounts will he transferred from the appropriate Revolving Fund to the General Fund Receipt Account 362419.2.
b. When disbursements are made in foreclosure cases by VA, such as travel, per diem, etc., for a VA salaried employee, which are to be charged to any VA portfolio loan, the voucher covering the disbursement will identify as an advance the amounts and the loans to be charged.
9E.13 ACQULSITION OF PROPERTY RESULTING FROM ACCEPTANCE OF A DEED IN LIEU
OF FORECLOSURE OF DEFAULTED PORTFOLIO LOANS
a. Acceptance of a Deed in Lieu of Foreclosure. Finance will be advised on VA Forms 26-6822 and 26-1827 of the acceptance of a deed in lieu of foreclosure. Upon receipt of VA Form 26-6822, the loan account will be closed out in the following manner. lnterest will be accrued on the account to the date of acquisition of title. The credit balance in the tax and insurance account will be applied to the loan account (unpaid principal only in the case of FHA loans). Any interest [and/or late charge] remaining due and unpaid after application of the credit balance in the tax and insurance account will be capitalized in the accounts through the processing of TT 004.
b. Direct Loans or Acquired Loans. A journal voucher will be prepared to record the conveyance of title to the property, which will be capitalized, except for vendee accounts, on the basis of data shown on the VA Form [268903], at the estimated reasonable value of the property in the case of 4318(A) loans, FHA loans, or direct loans, or VA equity therein in the case of 505(a) loans, provided that the recorded value may not exceed the amount of the total indebtedness on the loan account. The loan account will be credited with the amount of the capitalized value of the property. Any balance remaining in the loan account will be transferred, in the case of 505(a) loans on which a claim was paid, FHA loans, or direct loans, to the veteran's liability account, or, in the case of loans refunded under 38 CFR 36.4318, to account 1222.6, Receivables-Miscellaneous-Deficiencies From Liquidated Acquired Loans and Advances, and the acquired loan account will be closed. In cases wherein the veteran or other obligor is released from personal liability in connection with the acceptance of a voluntary deed, the amount which has been released should be written off.
c. Vendee Accounts. Usually the consideration for such deed will be the release of the borrower's liability under the contract. In such event the capital value of the property will be established at the amount of the total indebtedness under the loan account. The total indebtedness will be the unpaid principal, unpaid late charge, and interest at date of acquisition of title, plus any advances made for the benefit of the borrower, and less any balance remaining in the borrower's tax and insurance account.
9E.14 PROPERTY ACQUIRED THROUGH FORECLOSURE
Finance will be advised on VA Form [ ] 266822 [ ] of property acquired by foreclosure. Interest will be accrued to the date of foreclosure sale. The tax and insurance deposit [balance] will be [transferred to reduce the principal balance. The foreclosure will be processed within 30 days of receipt of VA Form 266822 in Finance. VA Form 266822 will be date stamped when received in Finance. If the foreclosure is returned to Loan Guaranty Division for adjustments/corrections, the Finance activity has 30 days from receipt of the revised document to complete coding actions.]
9E.15 FORECLOSURE SALE OF SECURITY PROPERTY TO THIRD PARTY
Finance will be advised of the foreclosure sale of a security property to a third party. Upon the receipt of the proceeds of such a sale, the loan account or accounts will be closed out in the following manner. Interest will be accrued on the account at the contract rate to the date of foreclosure sale. A further accrual will be made for the amount of interest allowed and included in the proceeds of the sale in excess of the contract accrual. Both accruals will be recorded on the loan ledger(s) without the preparation of a journal voucher. The credit balance in the tax and insurance account will be applied to the mortgage loan account (unpaid principal only in the case of FHA loans). The proceeds of the sale will then be applied, first to allowable foreclosure and other expenses, then to unpaid interest, late charge and to the principal balance. If the proceeds are less than the total indebtedness, the insufficiency will be applied as follows:
a. Loans refunded under 38 CFR 36. 4318 or vendee accounts: to account 1222, Receivables-Miscellaneous.
b. Guaranteed, insured, FHA, and direct loans to account 1162: Veterans Liability Account. (VA Form 266822 will be provided by the Loan Guaranty Division).
In the event the borrower has been released of liability by operation of law or otherwise, the deficiency will be written off.
9E.16 TERMINATION OF PORTFOLIO LOANS-GENERAL
A full discussion of the principles for termination of a portfolio loan account can be found in M263 and paragraph 9N.28 of this manual and reference should be made thereto for such further information as may be necessary.
9E.17 SALE OF VENDEE ACCOUNTS TO PRIVATE INVESTORS AND REPURCHASE UNDER
38 CFR 36.4600
a. General. Vendee account sales may be sold to private investors under the provisions of VA Regulation 4600. Such sales will be controlled by Central Office Loan Guaranty Service. The guaranty on loans sold provides for their repurchase subject to the terms and conditions of the cited VA regulations.
b. Sales Procedures. Sales will be based upon competitive bidding or sold "across the counter" at prices established for geographic areas by Central Office. These sales can be either at a premium or a discount dependent upon the interest rate of the loan being sold and other market factors. Upon establishing a freeze date and settlement date, the Finance activity will, if necessary, coordinate computer input/output data (statements, sales lists, etc.) with the Austin DPC regarding the proposed sale (see par. 9N.15 through 9N.24 for detailed sales instructions.)
c. Repurchase of Vendee Accounts Sold Under 38 CFR 36.4600
(1) The original VA Form 268084, Claim for Repurchase of Loan, and VA Form 268085, Notification of Repurchase of Vendee Account, will be furnished the Finance activity for use as the supporting documents, in recording the transactions and reestablishing the portfolio loan account.
(2) The transactions for repurchase of vendee loans will be carefully analyzed to insure the amounts are properly and accurately recorded. Also, the transactions must be forwarded promptly to facilitate servicing operations. Particular attention will be directed to recording any payments made for accrued interest in the proper general ledger accounts in accordance with the provisions of DVB Manual M263.
9E.18 SALE OF DIRECT LOAN ACCOUNTS TO PRIVATE INVESTORS
a. General. The direct loan program provides for the sale of direct loan accounts to private investors and will be controlled by Central Office Loan Guaranty Service. Such sales will be based upon competitive bidding or sold "across the counter," either at a premium or at a discount depending upon the interest rate of the loan being sold and other market factors (see par. 9N.15 through 9N.24 for detailed sales instruction).
b. Guaranty Provisions. Direct loans sold under these provisions become guaranteed loans with a guaranty certificate being issued by Loan Guaranty as though they were section 501(b) loans. In some of these cases, the VA sold direct loans and, in addition to guaranteeing them under the provisions of U.S.C. 1810, has also agreed to repurchase such loans for the amount of the unpaid principal balance plus unpaid accrued interest, provided certain criteria prescribed in the repurchase agreement have been met.
9E.19 STRUCTURAL DEFECTS
Title 38, U.S.C., section 1827 (amended by PL 90301) provides for the VA to make expenditures to correct or compensate for structural defects which seriously affect the livability of the property. Expenditures can be made for:
a. Correcting such defects; or
b. Paying the claim of the owner of the property arising from such defects; or
c. Acquiring title to the property.
Disbursements in connection with correction of structural defects will be charged to general ledger account 44 4011.14 or 46 4011.3 as appropriate.
9E.20 VENDEE ACCOUNTS
a. Establishment of Portfolio Vendee Account. Finance will establish and maintain individual portfolio loan accounts (loan types 3 or 4) for each sale on terms of property acquired by the VA. Accounts will be established from either of the following:
(1) A numbered journal voucher covering the sale(s), which will be prepared from a copy of the sales closing statement; or
(2) Directly from VA Form 266714 which would contain accounting entries. The VA Form 266714 would also be recorded in a sales journal which is footed at the end of the month for posting to general ledger accounts. Daily or group subtotals from appropriate columns of the journal serve as control figures over the posting of the corresponding group of VA Forms 266714 to the subsidiary records; or
(3) Directly from VA Form 266714 which would contain accounting entries. A journal voucher number may be assigned in such cases and the form interfiled as a journal voucher.
9E.21 CANCELLATION OF VENDEE INSTALLMENT SALES CONTRACT
Advice will be furnished by the Loan Guaranty Division to the Finance activity on the repossession of the security property in those cases where the installment sales contract has been canceled. Upon receipt of a copy of VA Forms 26-1827 and 26-6822, the vendee account will be closed. Interest will be accrued on the loan account to the date of cancellation of the contract, and the credit balance, if any, remaining in the tax and insurance account will be transferred and applied to the unpaid interest and principal balances due. The remaining unpaid interest, and/or late charges, if any, and the unpaid principal balance will then be transferred to, and capitalized in, the property accounts.
[9E.22 LATE CHARGES
a. The security instruments for portfolio loans provide that the mortgagor will pay a late charge not exceeding 4 percent of any installment when paid more than 15 days after the due date thereof. Effective August 1, 1974, the VA began charging delinquent borrowers a 4 percent late charge on installments (P&I plus T&l escrow deposit) received more than 18 days after the installment due date. (NOTE: The additional 3 days is allowed for receipt of payments-all written and verbal communications with borrowers should refer to the 15-day period as shown in the security instruments.) The following direct pay accounts are subject to late charge assessment: When Paid 1 (monthly); When Paid 2 (quarterly); When Paid 3 (semiannual); When Paid 4 (annual).
b. On partial payments, the late charge will be assessed only on that portion that is not paid timely; further, late charges less than $1 will not be assessed. Borrowers will be billed for late charges on the next bill produced after the late charge was assessed. For example, monthly payment due August 1 was received August 20, after the late charge was accrued. The next bill produced in September for the October payment will show the late charge assessed in August. VA Form 4242A, Mortgage Loan Payment Notice, has been revised to show a separate block for late charge which also will be included in the "Total Due" amount. During the billing operation, the current principal balance on the account will be printed on the bill as well as appropriate paragraphs informing the borrower of the status of his account.
c. Accrual. After processing collections on the 18th day after the installment due date, the system will accrue late charges on applicable unpaid accounts. Transaction type 096 will record this charge into the master record and will appear on the Transaction List; and, if unpaid, the late charge amount accrued will appear on RPO's and other related output issued on such accounts.
d. Late Charge Exclusion for Advances. Advances for payment of foreclosure expenses, or for taxes, insurance and special assessments are not subject to late charges.
e. General Ledger Accounts. To record late charge income and accruals, the following general ledger accounts are provided herein:
(a) 4_1621 Accrued late charges-mortgage loans and advances. (See app. L-2)
(b) 4_1622 Accrued late charges-Vendee accounts and advances. (See app. L-2)
(c) 4_3391 Late charge income-mortgage loans & advances. (See app. L-2)
(d) 4_3392 Late charge income-vendee accounts & advances. (See app. L-2)
1. Cash collections*
2. Late charge capitalized*
3. Late charge due and unpaid at end of month*
*Applicable to general ledger accounts 4_3391 and 4_3392.
f. Field Station Actions.
(1) As mentioned in paragraph c. above, late charges are normally automatically accrued by the system; however, field stations also have the ability to insert specific transactions (TT'.s 096 or 196) to insert or adjust this charge. TT 096 will insert, or add late charges to existing accrual data; whereas, TT 196 will reduce or delete this charge.
(2) Late charge amounts previously collected may be authorized by Loan Guaranty to be transferred to T&I, interest and/or principal. In this case, Finance will code VA Form 4-8431 using TT 061 to generate system accounting entries as follows: (a) Debit 4_3391.1 or 4_3392.1 as applicable; (b) Credit: appropriate T&I, interest and/or principal as coded. (See sec. L-9, figs. L-6 and L-6a for coding requirements for VA Form 4-8431, Portfolio Loan Accounting Code Sheet (PLACEARS) for coding of TT's 061/161 and 096/196, respectively.)
Collection Application Sequence. Accrued late charges, generally, will be collected last, after T&I, interest, principal and advance amounts have been satisfied. TT 400 series transactions will accomplish this distribution objective.
h. Exclusions. Late charges will not be assessed against the following accounts:
(1) How Paid 2 (C&P deduction).
(2) How Paid 3 (Military deduction).
(3) How Paid 4 (Direct and DFB).
(4) How Paid 5 (Direct and allotment).
(5) When Paid 5 (Term-lump sum).
(6) When Paid 6 (Other).
(7) Temporary Modifications 4, 5 or 7.
(8) Installment contracts closed prior to July 1, 1964.
i. End-of-Month Accruals. Accrued late charges due and unpaid (4_1621 and/or 4_1622) will be provided by the system each EOM and reported to field stations via ARS. The data will be used to prepare field station journal voucher accrual entries which will be reversed at the beginning of the succeeding month by the field station.
j. Transaction List Template. VA Form 208626d, PLACE-Accounting Transaction List Template, will be used by field stations to read the transaction lists.
k. Receipt Date. The date of receipt of the collection by VA is the determining factor in assessing a late charge. If a late charge has been accrued and a collection subsequently processes with a receipt date equal to or prior to the late charge accrual date, the system will automatically reverse the late charge accrual by generation of TT 196. The same reversal will occur automatically when a suspended credit with a "timely" receipt date is applied to installment payments.
l. Capitalization
(1) Automatic. All unpaid and billed late charges on direct pay loan accounts will be automatically capitalized (added to principal balance of indebtedness) by the system (TT 004) when the oldest late charge remains billed but unpaid for 6 consecutive months; however, if suspended credits or a record condition other than "00" or "02" exists on the account, or diary reason codes 110 or 114, automatic capitalization will not take place. When Paid 2 (quarterly) accounts will be automatically capitalized before the second regular billing cycle after the late charge has been accrued. When Paid 3 (semiannual) loans will be automatically capitalized when the next semiannual bill is prepared following accrual of the late charge. After capitalization by the system, a special message will be printed on the billing notice to advise the borrower of the capitalized action.
(2) Manual. Field stations as appropriate can manually code TT 004 to effect capitalization of late charges (see app. L. sec. L-9, fig. L.5 for coding requirements). When Paid 4 (annual) accounts will be manually capitalized by field stations after receipt of RPO 63, and upon written advice from Loan Guaranty. Manual capitalization is also required prior to termination by foreclosure or voluntary conveyance. NOTE: Manual capitalization by field stations will not initiate paragraph notification on subsequent billings.
m. Sales to Private Investors. If loans are sold to private investors, late charges existing on the account will not be collected from or transferred to the purchaser.
n. Terminated Accounts. On payoffs, accrued late charges will be collected (T/P response will show late charges as a separate item). For foreclosures and deed-in-lieu accounts, the accrued late charges will be included in the total indebtedness, and will be capitalized (TT 004) by the field stations prior to initiation of terminating transactions 072. 073, 074 or 082 as applicable.
NOTE: TT 004 should be processed in the same cycle as applicable terminating transactions and can capitalize both unpaid interest and unpaid late charges on the same transaction. TT 004 coding is required for each installment segment to properly record the capitalization.
o. Conversion. Late charges will not be assessed on installment amounts owed prior to conversion (August 1, 1974.)
p. Repurchased and Acquired Loans. After establishment, the system will accrue late charges as necessary for repurchased and acquired loans.
q. Frozen Bills. Billings for accounts containing record conditions 1X, 2X, 3X, 4X, 6X, 7X or diaries 110 and 114 will be mailed to field stations along with other "frozen bills" for review, correction and mailing to the borrower. The field station will analyze the account to determine reason for the record condition and take appropriate action to adjust the matter record and the billing. (See pars. 9N.25 and 9N.26.) As soon as the record condition reverts to "00" the system will automatically accrue the account to date, if necessary, including applicable late charges.
9E.23 PROMPT PAYMENT ACT (PUB. L. 97177)
a. General. Pub. L. 97177, enacted May 21, 1982, was passed with the clear intent that the Government, when procuring goods, materials or services under a Federal contract, should pay its bills on time. If not paid within 30 days after receipt of a proper invoice, then the vendor should also be paid interest on the unpaid amount. MP-4, part III, paragraphs 2.07 and 2.08 incorporates this Public Law; and VA Central Office, Finance Service (047C1) provides up-to-date interest penalty tables on an "as needed" basis. The tables are based upon current borrowing costs as experienced by the Department of Treasury.
b. Applicability to the Mortgage Loan Programs. VA's General Counsel analyzed Government debts arising from the home loan program and ruled that the procurement of property and services associated with foreclosure, compliance inspections, or the maintenance, repair and sale of acquired properties fall within the meaning of the law and pertinent OMB guidelines. Other types of disbursements in 36X4024 and 36X4025 are therefore excluded from the provisions of the Prompt Payment Act.
c. Computing the Late Penalty/Interest Payment. To compute the interest amount due, field station accounts should refer to MP-4, part III paragraph 2.07 and up-to-date interest tables as supplied by the Office of Budget and Finance (047C1), VA Central Office.
d. Charging the Late Penalty/Interest Amount. Penalty/lnterest amounts will be charged to appropriation 36_0151.001 (GOE) in the CALM (Centralized Accounting for Local Management) system, using cost center 3050 and subaccount 2580.
e. Erroneous Late Penalty/lnterest Amounts Charged to 36X4024 and/or 36X4025. Erroneous charges to 36X4024 and/or 36X4025 will require an OF 1017G (1081 series) to withdraw from appropriation 36_0151.001 (GOE) and pay to the applicable revolving fund (36X4024 or 36X4025).
f. Station Reports. Each Federal agency is required to report to the Director of OMB within 60 days after the end of each fiscal year all monies paid for interest penalties. This station report will be prepared by each field station and mailed to arrive at VA Central Office, Reports Division (047B1), no later than November 15 of each year and identified as Interest Penalties on Late Payments Report, Reports Control Symbol 040669. Negative reports are required.]
SECTION F. PROPERTY ACCOUNTS
9F.01 GENERAL
Individual master records will be maintained by the Austin DPC in the PMS (Property Management System) in connection with all real or personal property acquired, or in process of acquisition, under the mortgage loan programs. Such individual accounts will constitute a continuous record of all financial transactions relating to each property from date of acquisition to date of disposal. The account will reflect the current capital value of the property, as well as expenses incurred and income realized during the entire period the property was held. (See sec. S [of this chapter] for a detailed description of the PMS.)
9F.02 ESTABLISHMENT OF PMS MASTER RECORDS
a. System Establishment. Normally LCS or [PLS] processing will initiate data to establish the PMS master record, as follows:
System of Origin Initial (Skeleton) Master Finance Coding Required To
Record Established By Complete the Master Record
LCS Loan Guaranty coding of TT TT 540 (LCS claim and
520 for liquidation action acquisition paid with
code: distribution to 1162.01 .03).
2 (Deed acceptance to VA)
or 7 (Foreclosure sale)
[PLS] Loan Guaranty coding of TT TT 072 [(PLS)] with termination
070 to insert termination of [PLS] master record by
referral code and date processing of TT 070.
(record condition X4).
b. Direct Coding Establishment. It is not possible to establish a PMS record by direct coding on the part of field station personnel. If an authorized disbursement or an accounting adjustment appears necessary on a property not in the system, Finance activity should verify that the property account identification is correct, obtain the facts of the case, and contact Central Office, FTS 3893442 or 3895546] for instructions.
9F.03 MAINTENANCE OF PMS MASTER RECORDS
a. The individual PMS master records will be maintained by the Austin DPC using computer equipment.
(1) The system will be updated daily and provide computergenerated output as described in section S [of this chapter.] (Par. 9S.09.)
(2) The system provides for station input via either [VADATS (VA Data Automated Transmission System)] or hard copy coded data which is mailed to the DPC for key entry processing prior to system update. (Par. 9S.04.)
(3) As of the end of the fiscal year, PMS will automatically close the "Operating Income and Expense" data fields of the master records.
b. Accounting entries generated by the PMS will be retained at the DPC and posted automatically to the GLS as described in section R [of this chapter.]
9F.04 NOTIFICATION OF PROPERTY ACQUIRED BY VA, REDEEMED, SOLD OR DISPOSED
OF PRIOR TO ACQUISITION BY VA
The Finance activity will advised when property is acquired, withdrawn, redeemed, sold, or, in connection with guaranteed and insured loans, when property is sold by holder for the account of VA. Notice of properties acquired will be received in accordance with the procedure outlines in the succeeding paragraph. Advice of properties withdrawn and
redeemed will be received from the Loan guaranty division in accordance with M26-5, paragraph 6.09. Property sales will be reported to the Finance activity by the furnishing of VA Form 26-714, Sales Closing Statement, after which the portfolio loan master record will be established unless the sale is for cash representing payment in full.
9F.05 [(DELETED BY CHANGE 26.)]
9F.06 PROPERTY ACCOUNTING PRINCIPLES AND OBJECTIVES
a. Where property is acquired from holders, or is bid in by VA at public sale upon foreclosure by the holder or VA, the division between guaranty and insurance costs and operational costs will be made as nearly as practical at the time when absolute title or title subject to redemption is taken to the property; i.e., costs incurred prior to acquisition which are chargeable to the veteran-borrower will be considered as guaranty or insurance costs; costs incurred or income received subsequent to acquisition of the property will be considered as operational costs or income, as applicable. Any losses incurred as the result of liquidation of the security for a vendee account will be considered as operational losses.
b. Generally, it is the objective that property values be recorded at cost or estimated reasonable value to VA depending on the circumstances surrounding the acquisition of the property, as more fully set forth in subsequent paragraphs herein. Generally, this value will be represented by the maximum bid, or the specified amount, or, in the absence of a specified amount, by the estimated reasonable value of the property to VA based on a current appraisal. Additional costs incident to the acquisition of the property will be capitalized.
c. The capital (asset) value of property carried in general ledger accounts 4_1726 and 4_1821 will, for practical purposes, represent all costs necessary for initially bringing the property to salable condition. Costs capitalized will include the initial capitalization, costs incident to acquisition, cost of initial repair programs and initial cleanup, and improvements which should increase the value.
d. Costs which are attributable to expenses incurred in carrying and managing acquired properties in inventory should be segregated from expenditures relating to the cost of acquiring the property and improving it to its present condition.
e. It is also the objective to reflect in accounting reports recognizable losses on property accruing when capitalized value exceeds the current sales price. An asset valuation account is provided for this purpose. Through the use of this valuation account properties will be reflected in financial reports at cost or market value, whichever is lower.
f. In those cases where the property may be acquired subject to outstanding prior liens, the property will be recorded at a value net of such prior liens, i.e., the amount of VA equity in such property.
9F.07 [(DELETED BY CHANGE 26.)]
9F.08 RECORDING OF PROPERTY ACQUIRED FROM HOLDERS-SECTION 505(A) CASES
a. Simultaneous Foreclosure of Primary and Secondary Mortgages. Where the holder has foreclosed simultaneously on both the primary FHA and secondary 505(a) mortgages, or accepted a deed in lieu thereof, and an amount has been specified to be credited to the indebtedness, the initial capital value of the property will be established at the specified amount, but not to exceed the amount of the total indebtedness.
b. Foreclosure of the Secondary 505(a) Mortgage Only. In the event the secondary 505(a) mortgage only is foreclosed by the holder or a deed in lieu thereof is accepted by the holder and an amount is specified on the secondary mortgage, the initial capital value of the property will be recorded in the amount specified for the secondary mortgage, but not in excess of the amount of the indebtedness under the secondary mortgage.
c. Foreclosure of Primary Mortgage Only. Where the primary mortgage only is foreclosed by the holder and the VA arranges with the holder to bid in behalf of VA or VA bids at foreclosure sale, the amount to be recorded as the initial capital value of the property will be the amount of the authorized maximum bid or the bid price, if greater, but not to exceed the total indebtedness.
d. Vouchers in Liquidation of Outstanding Primary Mortgages. In the event a property is acquired by VA, subject to an outstanding primary mortgage, the amount disbursed representing full liquidation of the primary mortgage will be added to the capital value of the property, whether the property is in process of acquiring title or is owned.
e. Monthly Mortgage Payments. Where monthly payments are made on the outstanding primary mortgage indebtedness, on properties owned or in process of acquiring title, the entire amount of such payments will be added to the capital value of the property. This is an exception to the general principles outlined in paragraph 9F.06.
9F.09 ACQUISITION OF PROPERTY THROUGH FORECLOSURE BY VA OF
DEFAULTED, ACQUIRED, OR DIRECT MORTGAGE LOANS OR MORTGAGE LOANS
IN PROCESS OF LIQUIDATION
In the event a property is acquired through foreclosure by VA, on other than vendee accounts, the initial capital value of the property will be recorded at the greater of the following as shown on VA form 261827:
a. The bid price at foreclosure sale (line 17), or
b. The estimated reasonable value of the property to VA (line 11), or
c. The authorized maximum bid (line 16),
provided the amount in any event shall not exceed the total amount of the indebtedness on the loan account(s), including liquidation expenses. In those cases where foreclosure action is taken with respect to the secondary mortgage only and the property is acquired subject to the outstanding primary mortgage, the initial capital value of the property will be recorded as provided above in the portion of the value applicable to the second mortgage only.
9F.10 ACQUISITION OF PROPERTY RESULTING FROM ACCEPTANCE OF A DEED
IN LIEU OF FORECLOSURE OF DEFAULTED, ACQUIRED, DIRECT MORTGAGE
LOANS, OR MORTGAGE LOANS IN PROCESS OF LIQUIDATION
a. In the event property is acquired through acceptance of a deed in lieu of foreclosure of defaulted, acquired, or direct loans, the initial capital value of the property will be recorded as the amount of the estimated reasonable value of the property to VA, as shown on line 11, VA Form 26l827, provided such amount shall not exceed the total indebtedness recorded on the loan accounts.
b. In those cases where property is acquired through acceptance of a deed in lieu of foreclosure of loans classified as mortgage loans in process of liquidation, the capital value of the property will be established at the total amount of the indebtedness on the loan account(s). Where the property is acquired subject to an outstanding primary mortgage, the procedure provided in paragraph 9F.09 will be observed in determining the initial capital value of the property.
9F.11 REACQUISITION OF PROPERTY BY REPOSSESSION ON A DEFAULTED VENDEE
ACCOUNT
In the event of the reacquisition of property by repossession, in those cases where the property was sold on an installment contract and title was not vested in the purchaser, the capital value of the property will be established at the total indebtedness on the vendee account, including repossession costs chargeable to the vendee. The total indebtedness will be the unpaid principal and interest balances at date of repossession plus any advances on the loan account, less the balance remaining in the borrower's tax and insurance account.
9F.12 REACQUISITION OF PROPERTY BY ACCEPTANCE OF A DEED IN LIEU OF
FORECLOSURE OF A DEFAULTED VENDEE ACCOUNT
Under certain conditions the Loan Guaranty Officer may accept a deed in lieu of foreclosure of a defaulted vendee account. Usually the consideration for such deed will be the release of the borrower's liability under the contract. In such event the capital value of the property will be established at the amount of the total indebtedness under the loan account. The total indebtedness will be the unpaid principal and interest balances at date of acquisition of title, plus any advances made for the benefit of the borrower, and less any balance remaining in the borrower's tax and insurance account.
9F.13 ACQUISITION OF PROPERTY BY FORECLOSURE OF DEFAULTED VENDEE ACCOUNT
The Finance activity will be advised on VA Forms 26-1827, Assignment of Property Acquired on Pending Acquisition and 26-6822, Advice of Termination and Indebtedness on Portfolio Loans, of the acquisition of title to property resulting from foreclosure action under a defaulted vendee account. The capital value of the property will be recorded at the amount of (a) the bid price at foreclosure sale, or (b) the authorized maximum bid (i.e., estimated reasonable value), whichever is greater, provided such amounts do not exceed the total indebtedness, including foreclosure costs chargeable to the borrower. The amount required to be credited to the loan account will be supplied by the Loan Service and Claims Section on VA Form 266822.
9F.14 REAL PROPERTY IN PROCESS OF ACQUIRING TITLE
a. Property Acquired. Real property acquired by the Administrator in cases where absolute title cannot be secured until the expiration of the legal period of redemption shall be classified "Real Property in Process of Acquiring Title." When advised that absolute title has been secured, the capital (book) value of the property will be transferred to the "Real Property Owned."
b. Property Rights Acquired. Real property rights acquired by the Administrator upon the receipt of the lender's election to convey in cases where, prior to conveyance, the lender sells such property for the account of VA, shall he classified "Real Property in Process of Acquiring Title."
9F.15 ADDITIONAL CHARGES TO CAPITAL VALUE OF PROPERTY
The capital (book) value of property recorded [as appropriate] in general ledger accounts 1726, Real Property in Process of Acquiring Title; 1821, Real Property Owned; and 1464, Personal Property Owned, will be increased with the amount of the following costs incurred and disbursed by VA in connection with, or subsequent to, the acquisition of property. Vouchers covering the payments of these costs will identify those charges which are capital items.
a. Acquisition Costs. All costs, regardless of amount, incurred incident to acquisition of title to the property, including cost of title examination, title insurance, abstracts of title, legal expenses, recording fees, documentary stamps, taxes and special assessments which constituted a lien against the property at time of foreclosure sale or time of acquisition of property by the VA and which may not be legally charged to the obligor or charged to the proceeds of the sale, etc., but not including foreclosure expenses assumed by the VA in cases where such expenses are not, under local law, chargeable to the borrower. Acquisition costs may be paid by the VA direct or may be included in claim and property acquisition vouchers paid to holders. In the latter case the initial charge would be to the veteran's liability account with subsequent credit as authorized deductibles or approved credits on the basis of VA Form 26-1833, Advice Regarding Veterans' Indebtedness of Obligors on Guaranteed or Insured Loans. Charges to the property account for acquisition costs will be entered in general ledger account [4_1726.04, 4_1821.04, 4_1726.05, or 4_1821.05.] For convenience, emergency repairs which are made by holder and reimbursed on claim or acquisition vouchers, and which are determined not chargeable to the obligor, may be transferred to account [1726.04 or 1821.04.]
b. Initial Repairs and Rehabilitation. Initial rehabilitation cost such as repairs or improvements of various types which are undertaken to place the property in salable condition. Initial cleanups and minor repairs billed therewith or identified with an initial cleanup or rehabilitation program will also be included since these represent onetime costs in acquiring the property. These will be charged to account [1726.06 or 1821.06.] Minor repairs not billed or identified with an initial cleanup or rehabilitation program will be charged as property operating expenses.
c. Subsequent Capitalized Improvement Include:
(1) Cost of improvements made to a property to promote the sale to a particular purchaser with the understanding that the sales price will be increased by the cost of the improvements, when such improvements are not classified under subparagraph b above.
(2) Costs of restoring the property in cases of destruction, partial or total, as a result of fire, windstorm, flood, vandalism, or other hazard. In these cases there should have been a reduction in capital value at the time of the loss, under procedures for recording insured and uninsured losses.
(3) Other costs where an expenditure is made which results in an increase in the property value, such as major improvement programs or alterations undertaken after the properties have been held in absolute title for some time, or special assessments for improvements made subsequent to establishment of the initial sales price.
d. In cases when accomplishment of an improvement program requires more than one authorization or contract the program should be considered as a whole and all individual payments pertaining thereto should be capitalized. No arbitrary amount will be established above which all repairs or improvements will be capitalized; however, from a practical standpoint it will be permissible to treat all repair bills of less than $50 as maintenance expenses unless they are readily identified or associated with the initial cleanup or rehabilitation program.
e. It will be recognized, of course, that often after a property has been rented by the VA, a rehabilitation program entailing expenditure of a considerable amount is necessary to restore the property to a salable condition. In such cases the expenditure would not normally be capitalized, on the basis that the property has merely been restored to its prerental value and that the amount paid is an operating expense resulting from the holding of the property. The same reasoning would also apply in cases where property is held vacant for extended periods and, because of normal deterioration, requires rehabilitation to restore it to a salable condition. Such deterioration would be due to causes other than those included in subparagraph c(3) above.
9F.16 MISCELLANEOUS CREDITS TO CAPITAL VALUE OF PROPERTY
The appropriate property account will be credited with the following which have the effect of reducing the value of property in process of acquiring title or property owned; (See M265, par. 4.05, for disposition priorities.)
a. Proceeds of sale of rights of way;
b. Proceeds of sale of timber.
c. Proceeds of sale of oil, gas, mineral, or similar rights;
d. Uninsured losses from fire, windstorm, or other hazards;
e. Other items similar to the above categories.
9F.17 INSURED AND UNINSURED PROPERTY LOSSES
a. Insured Losses. The destruction, partial or total, of property owned, or in process of acquisition, as a result of fire. windstorm, flood, vandalism, or other hazard must be recorded in the property accounts. If the loss is covered by insurance, the proceeds of any insurance settlement will be credited to the capital value of property owned or in process of acquisition. The cost of any repairs for insured losses will be charged to the capital value of the property. The insurance loss proceeds received in connection with property owned or in process of acquisition must be transferred in gross amount to the applicable appropriation. Payment of restoration costs on property will be made from 36X4025 or 36X4024, as applicable.
b. Uninsured Losses. In the event the loss to the property is not fully covered by insurance, the Finance activity will be advised as to the type and amount of the loss. The amount of the property loss will be recorded by crediting the capital value of the property involved and the related general ledger account and charging the amount of the loss to account 464258, Asset Writeoffs. or 44401l, Operating Expense-General, as applicable. In the event the property is restored, the cost of restoration will be charged to the capital value of the property.
9F.18 PROPERTY EXPENSES
a. General Ledger Accounts. All expenses, other than charges to the capital of the property, incurred subsequent to acceptance of custody by VA, or in the case of taxes, after acquisition of title, (either absolute or subject to redemption), will be charged to account 4_4072, Property Expense. Any refunds of such expenses will be credited to the account originally charged. All such expenses will be posted to the applicable expense [fields] of the [PMS master record.] Types of expenses chargeable to the applicable property expense analytical accounts are as follows:
(1) Taxes. Property taxes and penalties thereon; personal property taxes; and taxes of any other nature.
(2) Assessments. Payment of sewer, paving, and other assessments.
(3) Maintenance. Ordinary repairs not classified as capital charges; cleaning of premises; winterizing of property; cost of protection from vandalism; extermination treatment, etc.
(4) Miscellaneous. Payment of utility bills; sewer rent; janitor services; fuel; ground rents; eviction costs; etc.
(5) Commissions. Rental commissions; management fees; commissions on repairs or expenses paid through brokers; custody fees or other management fees or commissions, except sales brokers' commissions.
b. [Authorization Numbers
(1) Authorization numbers will be assigned by the Loan Guaranty Division and affixed to all work orders, except recurring services such as grass cutting, etc., issued in connection with property management functions. The authorization number will consist of a two-digit prefix code followed by a five-digit serial number beginning with 00001 each fiscal year. Prefixes assigned are:
(a) 30-Maintenance and Repairs (PM expense).
(b) 35-Repairs After Sales Closing (PM expense).
(c) 60-Initial Repairs and Rehabilitation (Capital Charges).
(d) 70-Subsequent Capital Improvements (Capital Charges).
(2) The authorization prefix will normally be accepted as governing in determining the account classification to be used in recording the accounting transaction. This does not, however, relieve the fiscal officer of his/her responsibility, through the chief accountant, for final determination of the proper account to be used.]
c. Auditing Procedures. The property management invoices, upon receipt in the Finance activity, will be audited as to supporting documentation, including certified copy of authorization when applicable, validity of payee, mathematical accuracy of the invoice total, and certification as provided in MP-4, part III, paragraph [2.06b,] by a properly designated official in the Loan Guaranty Division.
d. [Finance Audit. In addition to auditing shown in subparagraph c above, the invoice payment will be audited by accounting technicians after receipt of the PMS Cumulative History List. The accounting technicians will visually analyze the list and seek to identify and research those payments where erroneous or illegal payments have been made by the VA. The following types of payments should be thoroughly researched to verify that proper disbursement of Government funds occurred:
(1) Payment amounts are identical;
(2) Same services for same date;
(3) Services or items were furnished after the sales date with no authorization by Loan Guaranty Division officials;
(4) There is evidence that the property is not pending acquisition or has not been acquired;
(5) The amount disbursed exceeds the limit set for local determination and Central Office letter of authorization has not been received.
e. Reporting Results of Analysis. Results of above analysis will be brought to the attention of the Chief Accountant and Finance officer for appropriate action.]
9F.19 PROPERTY REDEMPTION BY FORMER VETERANOWNERS OR OTHERS
Prior to the expiration of the established redemption period for properties recorded in account 1726, Real Property in Process of Acquiring Title, the former veteran-borrower, or others, may redeem the property. The Finance activity will be advised and furnished redemption analyses on all properties in process of acquiring title which have been redeemed. Any items of expense or income which were added to the capital value of the property and are not included in the redemption amount will be transferred to account 464258 Asset Writeoffs, or 444011, Operating Expense-General, as applicable, if such items are administratively determined to be uncollectible.
9F.20 MONTHLY ACCRUAL OF RENTAL DUE AND UNPAID
At the end of each calendar month, the total rent due and unpaid from "tenants in possession" will be journalized in the general ledger and reversed on the first day of the succeeding month. The amount of any rent due and unpaid from a tenant who has vacated the premises will not be included in the monthly accrual of rent due and unpaid. Such accounts will be established as a receivable due from "former tenants" and will be recorded in general ledger account 4_1222.07, Receivables-Miscellaneous-Rent Due From Former Tenants, from either a journal voucher or SF 1114, Bill for Collection, where the latter form is used. VA Form 41103, Accounts Receivable Record Card, will be prepaid as the subsidiary receivable record, except where local preference is to prepare and use a copy of SF 1114 for this purpose. The subsidiary record will then be forwarded to the accounts receivable activity so that prompt collection action can be initiated.
9F.21 RENTAL PAYMENTS RECEIVED
Rent collected from tenants, proceeds from sale of products under sharecropper agreements, income from tenant-operator agreements, and other income derived from tenancy agreements will be classified as rental income and credited to account 4_3382, Rental Income-Property Owned, and [recorded to both PMS and] tenant's accounts. [(See par. 9F.22.)]
9F.22 TENANT'S ACCOUNT
a. Establishment of Account. A record will be maintained on VA Form 4-6726, Tenant's Account, for each tenant occupying property leased from the VA under the guaranteed, insured, or direct loan programs. The tenant's account will be established and changed, where necessary, upon receipt of VA Form 26-6727, Notification of Tenancy or Changes Therein, from Loan Guaranty Division. The accrual of rent due, payments received, or any adjustments thereto will be recorded in the account.
b. Reporting of Unpaid Rent. The Finance activity will furnish the Loan Guaranty Division a report on the accounts, of those tenants who remit directly to VA, on which rents have not been received [within] FIVE days after the due date. For those tenants who remit through brokers, notice need not be given unless payment has not been received within 10 days. An additional report will be furnished the Loan Guaranty Division showing each account which has been delinquent 1 month or more.
c. Collections Received on Delinquent Tenant's Accounts. The Finance activity will advise the Loan Guaranty Division of all collections received on accounts previously reported as past due or delinquent.
d. Termination of Tenant's Accounts. Generally, the tenant's account will be terminated based on information shown on VA Form 26-6727 received from the Loan Guaranty Division. However, where termination of the tenancy resulted from the sale of the property, the copy of VA Form 26-6714 received from the Loan Guaranty Division will be used to close the account.
9F.23 NOTIFICATION OF THE SALE OF PROPERTY ACQUIRED OR IN PROCESS OF
ACQUISITION
a. The Finance activity will be furnished a copy of each sales closing statement, executed in connection with the sale or partial sale of each property acquired by VA or sold by the holder for the account of VA. The statement will provide the necessary information for the recording of the sale of the property; the deposit and application of the proceeds of sale; the recording of any prorated expenses or income; and the establishment of a vendee account, if sold on terms. [The sales closing will be processed by Finance not later than 7 calendar days after receipt in their activity. The sales closing statement will be date stamped when received in the Finance activity.] In the event [ ] the sales proceeds have not been received by the end of the month in which the [sales closing] statement was received, the procedure outlined in paragraph 9F.26 will be followed. This action will assure the recording of the sales closing statement during the month in which it was received. The copy of the sales closing statement will be reviewed by Finance [accounting activity] to determine its accuracy, including correctness of proration of taxes, insurance, rents, etc.; correctness of deposit of proceeds of sale. [If the sales closing statement is returned to Loan Guaranty for adjustments/corrections, Finance activity has 7 calendar days to complete coding after receipt of revised document.] After the sales have been processed, the copy of the sales closing statement will be retained by the Finance activity.
b. To the extent practical, sales should be recorded in the month in which the sale is closed. However, they will not be recorded until receipt of VA Form 26-6714, Sales Closing Statement, from the Loan Guaranty Division. Liaison will be maintained with Loan Guaranty to assure that all VA Form 26-6714's processed by that division and reflected in their reports as a sale during the month are furnished to Finance by the end of the month in order to permit their recording during the same month. Arrangements made between these divisions must include a provision for such documents to be processed to the Finance activity on a current basis throughout the month, thereby preventing a month-end buildup of work. Adherence to these provisions will result in synchronization of entries between Finance and Loan Guaranty activities, except in instances where property is sold before receipt of notice of title acquisition, and will provide more meaningful reports .
9F.24 DISPOSITION OF EARNEST MONEY DEPOSITS
Earnest money deposits will be processed in accordance with the provisions of MP-4 part I. Upon determination of acceptability, the funds will be deposited in the applicable fund account and credited to the appropriate suspended credits account. The deposited collections will be held in the suspended credits account until closing of the sale, at which time they will be transferred to the appropriate account as part of the proceeds of sale. In the event the sale is not closed, the earnest money deposit may be refunded or forfeited in accordance with terms of the sales agreement. The Finance activity will be advised with respect to the disposition of earnest money deposits.
9F.25 RECORDING OF PROPERTY SALES AFTER RECEIPT OF PROCEEDS OF SALE
a. The Finance activity when advised of the receipt of the net cash proceeds from the sale of property, will take action as follows to record the property sale:
(1) Record the amount of net cash proceeds as shown on SF 215, Deposit Ticket.
(2) Insert into the PMS master record all cash receipts (suspended credits) and/or noncash adjustments:
( a) Downpayment.
(b) T&I amount to be established in the [PLS] master record.
(c) Interest due VA.
(d) VA's share of tax liability to date of sale.
(e) Sales expenses and inducements, if any.
(f) Loan and installment data. (NOTE: Not applicable to cash sales.)
(g) Sales broker data.
b. See paragraph 9S.06 for TT's to be used and accounting entries generated thereby.
9F.26 RECORDING OF PROPERTY SALES PRIOR TO RECEIPT OF PROCEEDS OF SALE
In the event the proceeds of sale are not received prior to the monthend, the amount due from the sale of the property will be recorded as a receivable pending receipt of the cash proceeds of sale for deposit. Account 1225, Receivable-Sales Proceeds in Transit, is prescribed for recording the amount of the agreed cash proceeds of sale due the VA, as indicated on the sales closing statement. In the case of an all-cash sale, the amount chargeable to this account will be the agreed sales price as shown on the sales closing statement, and in the case of a term sale the amount chargeable will be the agreed sales price less the amount of the mortgage or installment contract. An individual ledger account for each sale, where the proceeds are not received at time of recording will be established on VA Form 4-1103, Accounts Receivable Record modified as necessary.
9F.27 SALE OF PROPERTY BY HOLDER FOR ACCOUNT OF VA
Occasionally, after the holder elects to convey property to VA, and prior to transfer of the property, and acceptable offer to purchase may be received either by the VA or the holder. In such cases it may be mutually agreeable to the holder and VA to convey title directly to the purchaser from the holder with sale to be for account of the VA. (See M26-5, par. 3.04.) In such instances there will be two separate accounting transactions: (l) the normal final accounting based on the specified amount, and (2) an accounting for the sale of the property. The Finance activity will be furnished a transfer voucher with copy of the holder's final accounting and a copy of the sales closing statement. Payment by VA of the amount due the holder will be by check in the manner provided for actual transfer of property to VA, and such amount will not be deducted by the holder from the proceeds of sale. The sale will be closed in all respects (except with respect to conveyancing) in the manner prescribed for the closing of sales of VA properties generally, including the use of a sales closing statement, and the receipt and deposit of funds. In this type of transaction, VA Form 26-1827 may not have been previously received and the capital value of the property not reported. Accordingly, upon receipt of advice of the sale, the Finance activity will request a copy of VA Form 26-1827 and record the capital value of the property in the usual manner, except that analytical account 4_1726.02, Capital Value at Acquisition, will be used and the PMS master record adjusted accordingly.
9F.28 SALE OF PROPERTY SUBJECT TO AN OUTSTANDING PRIMARY MORTGAGE
As indicated in paragraph 9F.08 c and d, a property may, in section 505(a) cases, be acquired subject to an outstanding primary mortgage. In the event the property is sold subject to the outstanding primary mortgage, the transaction will be recorded as a sale of the VA's equity in the property. The selling price applicable to such equity will be the total selling price, less the amount of the outstanding balance of the primary mortgage indebtedness.
9F.29 RECORDING CAPITAL VALUE OF PROPERTY SOLD TO COST OF SALES
Upon completion of the journalization of the sale of property including the posting of all items in connection therewith to the PMS master records, the capital (book) value of the property will be transferred to the applicable cost of sales account. Any subsequent charges or credits to the capital value of property sold will likewise be transferred to the general ledger account 4_4113, Cost of Sales-Property.
9F.30 PARTIAL SALES OF PROPERTY
A partial sale of property will be so identified on the reverse side of the sales closing statement. Partial sales of property will be recorded in the same manner as a sale of the entire property. However, the amount of the capital value of the property sold to be transferred to "Cost of Sales-Property" will be the exact amount of the selling price. If the selling price of the
initial portion exceeds the capital value of the property in its entirety, the total capital value will be transferred to "Cost of Sales-Property." The PMS master record will be retained in the active status classification until the remaining parcel is sold.
9F.31 LUMP-SUM DEPOSITS BY VA TO BORROWER'S TAX AND INSURANCE ACCOUNT
Where the sale requires the establishment of a tax and insurance account, the pro rata charge for taxes accrued to date will be a charge to VA, unless taxes have already been paid through or beyond such date, in which case they will represent a credit to the buyer. This credit will be reflected in the borrower's tax and insurance account along with deposits made by the individual. These amounts will be entered as a property expense (sales adjustment) and a credit to the tax and insurance account. In some instances, the sales terms will provide additional amounts to be credited to the tax and insurance account, particularly in no-downpayment, no-closing cost sales. Such amounts will be charged as selling expenses (sales adjustment).
9F.32 SELLING EXPENSES
The amount of expenses incurred incident to the sale of the property paid by voucher, or otherwise, including sales brokers' commissions, escrow fees, advertising costs, and other expenses assumed by VA, will be charged to the applicable sales expense account. Automatic telephone answering service expense will be considered as advertising costs.
9F.33 ESCROW DEPOSITS BY PROSPECTIVE PURCHASERS MADE TO GUARANTEE
PERFORMANCE OF TERMS OF SALES AGREEMENTS
Prospective purchasers of VA-owned property in some cases may be required to place in escrow with the VA certain sums of money to guarantee fulfillment of the conditions of the sales contract; e.g., completion of repairs to property by the purchaser. The Finance activity will be advised of any funds received which are to be held in escrow and the final disposition thereof when conditions of the agreement have been met by the purchaser. These funds are not to be confused with earnest money deposits in connection with the sale or lump-sum payments for credit to purchaser's tax and insurance account and will be credited to the applicable suspended credits account. Upon receipt of advice, the funds will be applied as directed.
9F.34 ADVANCES-SALES COMMISSIONS
a. M26-5, paragraph 5.09e, permits sales commission checks to be drawn in advance of the closing of a sale in order to expedite payment. It also provides for obtaining the broker's statement or invoice requesting payment of the commission at sale closing.
b. Since the check is being drawn in advance of the rendering of services, disbursements of this type will be charged to general ledger account 4_1114.01, Advances-Sales Commissions. This will provide a control over sales commission checks drawn prior to the closing of the sales. Upon receipt of VA Form 26-6714, Sales Closing Statement, evidencing closing of the sale, the amount paid as commission will be audited and transfer made from account 4_1114.01 to account 4_4111.01, Cash Transactions. To facilitate idenfying such cases, the invoice, when approved by a designated official of the Loan Guaranty Division will accompany the VA Form 26-6714 to the Finance activity.
c. Where this plan of paying sales commissions is utilized, the voucher in payment of the sales commission will show the check drawn in favor of the broker but mailed c/o agent cashier. The agent cashier will hold the check until advice is received from the Loan Guaranty Division as to is disposition. Appropriate followup will be made in those instances where checks of this type are not disposed of within a reasonable time. Where a sale cannot be closed and the commission will not be paid, checks drawn in anticipation of the payment of a commission must be promptly canceled.
9F.35 RECORDING PROPOSED SALES PRICE ON PMS MASTER RECORD
"Sales price" as used in this and succeeding paragraphs refers to the minimum sales price shown on VA Form 26-6701, Property Analysis and Recommendations. In order for the Finance activity to obtain data for the entries to the valuation account, the latest sales price will be shown in the sales segment of the PMS master record. The initial analysis in acquisition of property will consist of two amounts: the "as is" sales price and the "as repaired" sales price. This data will be inserted into the PMS master record by Finance processing of TT 611. Subsequent entries reflecting changes in "sales price" will be entered by processing TT 611 which will overlay the previously inserted data.
9F.36 ALLOWANCE FOR OVER-VALUATION OF PROPERTY INVENTORY
a. A valuation (or reserve) account will be maintained which will be adjusted periodically to reflect recognized losses on properties on which the minimum sales price is less than the capital value. The loss will be determined by a comparison of the capital value of the property against the sales price. For each property on which the capital value exceeds the sales price, the excess will be included in the allowance account.
b. The allowance account has been designated as 4_1822, Allowance for Losses on Unsold Properties and entries will be computer generated, therefore field stations must insure that valid data are coded into the PMS master records.
c. In event storm or other casualty loss occurs, entries will be made as prescribed in paragraph 9F.17, depending upon whether it is an insured or uninsured loss.
d. The allowance will be determined and recorded in general ledger accounts by the system each end of month and reversed automatically in the subsequent month.
9F.37 PROCESSING STAGE PAYMENTS COVERING REPAIRS PERFORMED ON A VA PROPERTY OWNED
a. When approved by the Loan Guaranty Division, Finance and Accounting activities may process stage payments covering repairs performed on VA property owned.
b. In certain cases, the VA may pay up to three approximately equal stage or installment payments on repair contracts exceeding $1,000.
c. Except as noted below, paragraph 9F.34 will be followed in the accounting for and control over checks drawn in advance of completion of repairs. SF 1034, Public Voucher for Purchases and Services Other Than Personal, will be used by the Loan Guaranty Division in requesting these checks and will specify amounts and include a certification that advance check is authorized. The check will be drawn in favor of the contractor but mailed "c/o Agent Cashier." It will be held by the agent cashier until a properly completed invoice for the amount of the check is received which shows a certification by the Loan Guaranty Division that payee is entitled to proceeds and a statement signed by the Finance activity certifying officer that "Check for $ ________ authorized to be released." The check will then be released to the payee by the agent cashier.
d. Upon receipt of the completed invoice and supporting VA Form 26-6724, Invitation, Bid, and/or Acceptance or Authorization, the amount previously charged to general ledger account 4_1114.01, will be transferred to the applicable 1726, 1821 or 4072 series of accounts.
e. Appropriate followup will be made in those instances where checks of this type are not disposed of within a reasonable time. Where property repairs are not accomplished and payment will not be made, checks drawn in anticipation of the payment for the repairs must be promptly canceled.
9F.38 (DELETED BY CHANGE 26.)
9F.39 ANALYSIS AFTER SALE OF PROPERTY BY VA
a. General. M26-4, paragraph 3.14.2 provides for an analysis to be made after the sale by VA of a property acquired as a result of claim [so that] the "net loss" to the Government [is known. This analysis will pinpoint those cases where an appreciating housing market may act to decrease the veterans' indebtedness. This analysis will be PMS systemproduced, printed on a VA Form 45308, Property Management Record Printout-Fiscal, and identified as RPO 91. The Austin DPC will distribute the RPO 91 to Central Office (261) for further analysis and possible reduction of indebtedness (see par. 9G.24).]
b. In the event Central Office elects to reduce indebtedness by the amount of the credit for value of the security at the foreclosure sale, a letter of authorization will be prepared by the Central Office Loan Guaranty Service and mailed to the field station. Based upon the data contained in the Central Office letter of authorization, action will be taken by the finance activity as outlined in paragraph 9G.24 to adjust the accounting records.
[9F.40 RESALE OF PROPERTY TO FORMER OWNER
a. General. Under the provisions of M26-5, paragraph 3.23, the Loan Guaranty Division, under certain circumstances, may resell a VA-owned property to the former owner. The indebtedness to the Government arising out of the prior claim payment will be considered by the Loan Guaranty Division in connection with the new sale. The Loan Guaranty Division will advise Finance Service of this fact via an adjusted VA Form 26-1833, Advice Regarding Indebtedness of Obligors on Guaranteed or Insured Loans, authorizing a deletion of the existing indebtedness. Upon receipt of the VA Form 26-1833, the following actions will be completed by Finance.
(1) Veterans Liability Case
(a) Operations Section will process Transaction 08C to return the receivable in Hines C&P to the regional office. Account 466145 will be debited and Account 461162.13 will be credited by Hines DPC.
(b) Based on the data on the "Authorized Fiscal Transaction Report-C&P" the Accounting activity at the regional office will prepare an OF 1017G, Journal Voucher, to debit account 461162.13 and credit account 466135. (This will record receipt of the veteran's liability account from C&P.)
(c) In addition, an entry will be made to record the liquidation of the veteran's liability as a noncash expense to the Loan Guaranty Revolving Fund: This expense will be recorded on a Journal Voucher debiting account 464011.02 and crediting account 461162.11.
(2) Nonveterans Liability Case. If the indebtedness was previously established as a miscellaneous receivable, the Accounting activity will prepare a Journal Voucher to debit 464011.02 and credit 461222.02.
(3) VA Form 4-1846, Veterans Liability Account or VA Form 4-1103A, Accounts Receivable Record, as applicable, will be posted to record the transfer and/or liquidation of the receivable. The card will be annotated to show that the receivable was liquidated due to the resale of the property to the former owner.
b. Subsequent Default by Borrower. If the borrower subsequently defaults on the second loan, VA Form 26-6822, Advice of Termination and Indebtedness on Portfolio Loans, forwarded to the Accounting activity, will be annotated by the Loan Guaranty Division to the fact that a previous indebtedness existed as the result of VA paying a claim on a defaulted loan. The Finance activity will reestablish the debt for the amount indicated on VA Form 26-6822 (not to exceed the capitalized amount). If no debt is to be reestablished, no receivable action is necessary. The current appraised value of the property as shown on VA Form 26-6822 will be transferred to PMS. As no transaction type exists in PLS (Portfolio Loan System) to properly record a veteran's liability, the reestablishment of the liability will be recorded via TT 073 in PLS and a debit to 461222.05 and credit to 461182.06 will be made via journal voucher to adjust the entry. Another entry debiting 1162.11 and crediting 461222.02 will be required to transfer the miscellaneous receivable (account 1222) to veteran's liability (account 1162). If miscellaneous receivable is to be reestablished, process TT 073 in PLS. Interest will be computed manually the same as for a veteran's liability described in subpar. c below.
c. Reestablishing the New Receivable. After the portfolio loan account has been terminated and the veteran's liability, if applicable, reestablished, VA Form 4-1846 will be released to the Accounts Receivable activity for their action. Interest owed will be computed from the date of foreclosure of the second loan through the last day of the month in which the first collection letter is expected to be sent to the debtor. Interest previously written off will be added to current interest owed so that a total interest due amount is available for reentry into C&P via TT 04A.]
SECTION G. VETERAN'S LIABILITY ACCOUNTS AND MISCELLANEOUS RECEIVABLES
9G.01 ESTABLISHMENT OF VETERANS' LIABILITY ACCOUNTS
a. Initial Notice. A veteran's liability account is a net indebtedness due the Government arising from the liquidation of the security on defaulted guaranteed, insured, direct, or certain acquired loans. A veteran's liability account record will be established in the Accounting Section and maintained on VA Form 4-1846, Veterans Liability Account, on receipt of the following:
(1) On guaranteed or insured loan defaults on receipt of whichever of the following occurs first: (a) Payment of either the claim or acquisition voucher or (b) receipt of notice that title to property has been acquired, either absolute or subject to redemption. Where the notice of title is received first, the property value for use in capitalizing the property and crediting the veteran's account (1162.26) will be obtained from VA Form [26-8903, Notice for Election to Convey and/or Invoice for Transfer of Property,] which should already be available in the Finance activity, or will be obtained from Loan Guaranty.
(2) VA Form 266822, Advice of Termination and Indebtedness on Portfolio Loans, on portfolio loan terminations
b. Joint Loans. If more than one veteran is involved under a joint loan, a separate VA Form 4-1846 will be established for each veteran and cross-referenced by inserting in the block provided the name and service number of the veteran(s) involved. The total indebtedness under joint loans will be posted to only one account. If more than one claim is paid on behalf of the same veteran under separate loans, the accounts should likewise be cross-referenced by indicating the other loan number(s) in the block provided.
c. Coobligors and Transferees. VA Forms 26-1833, Advice Regarding Indebtedness of Obligors on Guaranteed or Insured Loans, or 26-6822 furnished by Loan Guaranty Division will show the names of coobligors and transferees, the extent to which each is held liable and whether liable under indemnity or subrogation. VA Form 4-1846 will be annotated with this information.
9G.02 CLAIMS AND SETTLEMENTS WITH HOLDERS-LOAN GUARANTY PROGRAM
a. General. Specific data is required on fund requirements for use in presentation of information to the Office of Management and Budget and the Congress on the Loan Guaranty Revolving Fund 36X4025. Account 1162.01, Gross Claim, and account 1162.02, Additional Cost To Acquire Property, will reflect the gross claims paid and additional cost to acquire property. All disbursements for claim and property acquisitions will be charged initially to account 1181.02. As a result of computer processing in the LC (Liquidation and Claims) system, disbursements, other than for mobile homes, will be subsequently charged to account 1162.25. Account 1162.25 is used as a clearing account to accumulate both claim and acquisition disbursements until distribution can be made simultaneously with posting of credit for value of property acquired as specified and explained in paragraph 9S.02 herein. This synchronization will enable Central Office to determine the net claim paid on completed accounts by deducting account 1162.03 from the total of accounts 1162.01 plus 1162.02. Normally the entry should be made in the accounts in the same month it is included in Loan Guaranty statistical reports as a property acquisition.
b. Net Claim and Acquisition Payments. Normally payments to a holder will consist of a net claim payment and an acquisition payment. In these cases, an analysis of account and claim will be attached to the net claim voucher. This analysis will contain a figure identified as the gross claim payable which must be entered as a memorandum figure on the veteran's liability account, and coded in field-LD on TT 540.
c. Gross Claim and Transfer Vouchers. In some cases the holder may submit a gross claim voucher for the amount payable under the guaranty or insurance, and, subsequently, a transfer voucher for the additional amount due him for conveyance of the security property. An acquisition settlement analysis will be attached to the transfer voucher from which the gross claim payable figure may be obtained.
d. Refund on Claims Paid Received From Holders. Refunds on claims paid may be received from lenders, or holders, as the result of withdrawal of claims, overpayment of claims, or from liquidation of the security property. Refunds received from holders resulting from withdrawn claims in which the guaranty or insurance has been reinstated, will be treated as a reversal of the original entry, and of statistical code entries. Any interest received in addition to the claim refund will be credited to interest income on veteran's liability accounts. Refunds of overpayments to holders will likewise be handled as a reversal entry. The principal portion of any refunds received from holders on claims paid, other than overpayments or withdrawn claims, will be credited to account 1162.4.
[e. LCS Coding Requirement. Upon receipt of vouchers for type of payments cited in paragraphs b and c above, the Accounting activity will prepare VA Form 4-5231, Liquidation and Claim System Accounting Code Sheet (LCS-ARS), coding TT 540. In the case of refund or overpayment cited in paragraph d above, code TT 541. (See section Q for detailed instructions.)]
9G.03 FACTORS DETERMINING BORROWER'S NET INDEBTEDNESS-LOAN GUARANTY
PROGRAM
a. When the final accounting between VA and the holder is completed and the claim has been paid, the amount of the net indebtedness owing by the obligors to the U.S. Government will be determined. The method of computing the net indebtedness will vary, depending upon the type loan involved and the procedure followed with respect to the liquidation of any security therefor. However, generally speaking the net indebtedness will be the total indebtedness of the borrower to the holder (including any allowable foreclosure expenses and advances made pursuant to VA Regulation 4313 and chargeable to the veteran pursuant to the loan instruments or by applicable local law), less (1) the greater of (a) the specified amount, if any, or (b) the amount bid at the sale, less (2) any "credits" to the veteran's liability account covering items of foreclosure costs which are not chargeable to the borrower nor deductible from the sales proceeds under the terms of the loan agreement or under local law, plus (3).any "charges" to the liability account required to effect an adjustment for credits reflected in the computation of the amount or amounts paid to the holder which are not applicable to the veteran's net indebtedness. "Credits" to the veteran's liability account are those items included in a claim or in settlement with the holder which are neither chargeable to the veteran's indebtedness nor deductible from the sales proceeds under the terms of the loan agreement or under local law (e.g., attorney's fees in certain jurisdictions). "Charges" to the veteran's liability account are those items included in the claim or settlement with the holder which reduce the amount of the total payable to holder as credits which are not applicable to the indebtedness of the veteran (e.g., rent collected by holder after foreclosure).
b. VA Regulation 4320(A) for the guaranty or insurance of loans, amended December l5, 1948, provides that preceding a public sale of any security for a guaranteed or insured loan, VA may specify the minimum amount which shall be credited to the indebtedness of the borrower by the holder on account of the value of the security to be sold. Therefore, if an amount is specified, the veteran will be given credit on his indetedness to the holder for the specified amount, irrespective of any lesser amount which is bid at the public sale. If the amount bid at foreclosure sale exceeds the specified amount or if no amount was specified, the credit to the indebtedness will be that amount required to be credited under local law, e.g., the net sales proceeds, the credit legally required by the court, etc.
c. In section 505(a) cases, the same general principles which obtain in section 501 cases as herein modified will be observed in determining the amount of the credit to the veteran's indebtedness on account of the value of the security. The procedure with respect to specifying an amount, as set forth in VA Regulation 4320(A), is not applicable to 505(a) loans unless the second mortgage is being foreclosed. If only the second mortgage is being foreclosed, a credit to the second mortgage indebtedness may be specified. In such case, the amount of the indebtedness under the guaranteed 505(a) loan would be charged to the veteran and the indebtedness would be credited with the specified amount or the bid at sale, whichever is greater. In those cases where no amount is specified in connection with the foreclosure of the second mortgage, the veteran's net indebtedness will be the amount of the claim paid less any proceeds of the sale applicable to the second mortgage. In the event the holder conveys the property to VA subject to the primary mortgage, any action subsequently taken by VA with respect to the liquidation of the security will have no effect on the veteran's net indebtedness.
d. In section 505(a) cases wherein both the primary and secondary mortgages are being foreclosed by the holder, an amount may be specified pursuant to VA Regulation 4320 which relates to both the primary and secondary mortgage indebtedness, and the holder may convey the property to VA for an amount not in excess of that specified, if it is the successful bidder. If an amount is specified, the holder must account to VA on the basis of the specified amount irrespective of any lesser amount which is bid at the sale. If, under these circumstances the property is conveyed to VA, the veteran would be charged with the indebtedness under both mortgages and credited with the specified amount. However, if the property is not conveyed to VA, the net indebtedness will be the amount of the claim paid less that portion of the proceeds of the sale applicable to the second mortgage.
e. In section 505(a) cases wherein only the primary mortgage is being foreclosed and the VA has taken steps for the purpose of salvaging all or part of the claim paid or payable (i.e., arrangements are made for the holder to bid on behalf of VA, or VA to bid at sale), the veteran's net indebtedness will be determined by adding the total cost to VA of acquiring the property to the amount of the claim paid and crediting the veteran with (1) the authorized maximum bid, or (2) the amount bid at the sale, whichever is the greater. In no case will the credit on account of the value of the property exceed the amount which is charged to the veteran's account.
f. In section 505(a) cases wherein the VA pays a claim, obtains an assignment of the second mortgage