By law, any veteran who obtains a VA guaranteed loan, is legally obligated to indemnify (pay back) the United States Government for the net amount of any guaranty insurance claim (loss) the VA may incur and be required to pay to the lender in the event of borrower default.  Current law and regulations do however,  provide for the release from liability when the veteran sells the property and allows the new buyer to assume the VA loan.

Only if the loan is current and the qualified purchaser (transferee) assumes the loan and also assumes the indemnity obligation, can the  veteran can be released from any future liability. 

Pursuant to Public Law 100-198, veterans who received their VA  loan under commitments dated March 1, 1988 or  later,  must execute a release of liability. Failure to do so may result in foreclosure of the loan even if the loan is not in delinquency. A veteran will remain responsible for any loan balance that has been assumed even if they sell their home unless they obtain a release from liability. 

Some veterans obtaining VA loans prior to March 1, 1988 and who sold their home subject to the loan being assumed by a non-veteran,  found themselves obligated for the full repayment when the subsequent buyer defaulted.

Homes having VA assumable loans can be sold multiple times which puts the original selling veteran at great risk.  A buyer could assume the veterans VA loan and sell the property the next day and no matter how qualified or willing the veteran's buyer may seem, another buyer might not be as creditworthy.

Obtaining a release of liability is the prudent option for the selling veteran and it prevents the VA or the mortgage lender from suing the veteran in the event of default by the subsequent buyer.  The release does not however, allow the veteran to reuse his entitlement until that loan is paid off.  If, of course, the veteran resells to another veteran, this exempts him from the original obligation as long as the new purchaser (veteran) executes a  Substitution of Entitlement.  

Veterans with loans committed prior to March 1, 1988 should be especially cautious about allowing a new buyer to assume their loan since  these loans do not require a release of liability by the VA.  Sometimes, in the rush to sell, veteran sellers may not realize the ramifications of allowing an assumption which could also deny them future eligibility. 

Any veteran considering the sale of their home should obtain counseling from a VA lender or consult with an attorney familiar with VA benefits.