Release of Liability
If you sell the property which secures your VA loan, you will still be legally liable to the government unless one of the following conditions is met:
-Your loan is paid in full.
-The VA releases you in writing from liability on the loan.
-You sell the property to an eligible veteran with sufficient loan entitlement who agrees to assume your loan and substitute his or her loan entitlement for yours.
Please keep in mind that being released from liability does not enable you to have your entitlement restored unless a substitution of entitlement has been completed.
What if your loan is not paid in full and you are not released from liability by the VA or granted a substitution of entitlement?
If the person to whom you sold your home or any later owner defaults on your VA loan, any amount which the VA is required to pay to the holder of your loan under the loan guaranty contract will represent an amount which you will owe to the government. This is true, even if the purchaser assumes personal liability for the repayment of your loan.
If you are thinking of selling your property and allowing your VA loan to continue on the property, before you sign a sales contract, you should write or call the VA office that guaranteed your loan and ask for the necessary forms and instructions on how to obtain a substitution of entitlement or release of liability. This will protect you from continuing liability.
If your VA loan closed on or after March 1, 1988, and the GI loan will not be paid in full as part of the sale, then the approval of the VA or your lender is required prior to the sale of your home. If your loan closed prior to March 1, 1988, it is still strongly recommended that you contact the VA or your lender for approval prior to the sale.
For more information: VA Pamphlet 26-68-1: Selling your GI Home?