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Volume 8 - Opinions of Counsel SBEA No. 52

Opinions of Counsel index

Veterans exemption (eligible funds) (G.I. mortgage - Federal payments) - Real Property Tax Law, § 458; 38 U.S.C. §§ 694 [Serviceman’s Readjustment Act of 1944], 1810:

An application for a veterans exemption claiming eligible funds consisting of payments by the Federal Government on the guaranteed portion of a “G.I.” mortgage must be based on loans prior to September 2, 1958.

We have been asked to provide an explanation of the provisions of Instruction No. 11 on Form EA-458 (3/81) (Application for Veteran’s Exemption) concerning payments made by the Federal Government on the guaranteed portion of a “G.I.” mortgage. Instruction No. 11 provides that such payments are considered eligible funds, “for purposes of the veterans exemption, when they are used to reduce the principal of the mortgage, and in amount not to exceed $160.”

For an understanding of the nature of these payments, it is necessary to examine the history of former section 694 of Title 38, United States Code. This section was enacted as part of the Serviceman’s Readjustment Act of 1944 (Public Law, No. 346, 78th Congress, approved June 28, 1944). Section 500 of that act provided, in part, that loans bearing interest at a rate not to exceed 4% per year and made to veterans for purposes specified in that statute (including the purchase and construction of homes) would be guaranteed in an amount not to exceed $2,000. That act further provided that “[Interest for the first year on that part of the loan guaranteed . . . shall be paid by the Administrator out of available funds.”

The Serviceman’s Readjustment Act of 1944 was significantly amended in 1945 (Public Law, No. 268, 79th Congress, approved December 28, 1945) to provide that, for real estate loans, the amount to be guaranteed was increased to $4,000 and that “[A]n amount equivalent to 4 per centum on the amount originally guaranteed shall be paid to the lender by the Administrator . . . to be credited upon the loan.”

In 1946, the State Tax Commission determined that “In the absence of an agreement to the contrary between the lender and the veteran, the payment is to be applied by lenders as a principal curtailment.” Therefore, the Tax Commission concluded, “to the extent that the 4 per centum payment made by the Federal Government on the guaranteed portion of a ‘G.I.’ mortgage loan on real property reduces the principal of said mortgage”, a veterans exemption should be granted (67 State Department Reports, Taxation & Finance, 426).

Title III of the Serviceman’s Readjustment Act of 1944 (which included section 694) was repealed in 1958 (Public Law, No. 857, 85th Congress, approved September 2, 1958) and substantially re-enacted as chapter 37 (§1801 et seq.) of Title 38, United States Code. However, the provisions of section 694 pertaining to the first year payment by the Federal Government on guaranteed loans (see, 38 U.S.C. §1810) were not re-enacted. Therefore, any exemption applications claiming entitlement to a veterans exemption due to the use of eligible funds consisting of such payments by the Federal Government must be based on loans guaranteed prior to September 2, 1958.

May 13, 1983

Updated: