California Real Estate Practice Exam

In a foreclosure where a home purchase was made "subject to" an existing VA loan, who would be liable for VA losses?

1. Both Buyers and Sellers

2. Buyers

3. Neither Buyers nor Sellers

4. Sellers

The correct answer is: Both Buyers and Sellers

In a scenario where a home purchase is made "subject to" an existing VA loan, the liability for VA losses primarily falls on both the buyers and the sellers. When a property is purchased "subject to" an existing mortgage, the buyer takes possession of the property without formally assuming the loan. The existing lender remains the party primarily responsible for the loan, but the sellers are still involved because they have not paid off the mortgage. If the buyer fails to make payments on the existing VA loan, and the home goes into foreclosure, the seller can be held liable for any losses incurred by the VA because they still have a vested interest in the property and the original mortgage obligations. Additionally, the buyer, while not directly assuming the loan, may also be held accountable in terms of any agreements made during the sale regarding the home's financing. This dual liability captures the complexities of real estate transactions involving existing loans, especially with government-backed loans like those from the VA. The combination of interest makes both parties responsible for ensuring that the loan is satisfied, particularly when it comes to potential losses from a foreclosure situation.