§1491 Defaults; Written Notification; Pro Rata Payments; Subrogation and Assignment Rights of Secretary; Cancellation of Uncollectable Portion of Obligations; Forbearance for Benefit of Borrower; Interest or Charges Cessation Date

Summary

If a guaranteed loan goes into default, the holder of the guarantee can immediately notify the Secretary in writing. The Secretary must then pay that holder the holder’s share of the guaranteed amount and take over the lender’s rights, including the loan and its security. The Secretary can write off any part of the loan that can’t be collected after taking it over. The borrower and lender can agree to delay or reduce payments to help the borrower, but the Secretary must approve. The Secretary can also pick the date when interest or fees stop accruing, so long as it is not later than the date of judgment and decree of foreclosure or sale.