VA home loans work so well for military and veteran buyers. They offer a no money down purchase loan. But sometimes things happen outside of the service member’s control. Too often VA buyers have purchased a home that depreciated in value so that the home is underwater. Therefore the borrower is unable to sell the home for enough to satisfy the mortgage debt. A foreclosure, deed in lieu of foreclosure, or VA short sale needs to only be a last resort because of the serious credit ramifications.
Well one option offered by the Department of Veteran Affairs is the Compromise Sale Program. It is designed for getting VA borrowers out of an underwater mortgage that is giving them a financial strain or hardship. In order to use this VA short sale program, there are multiple requirements of the involved parties. This includes VA, lender, and borrower communicating well together. In addition, all must complete and provide required documentation.
The Compromise Sale Program is again basically a VA short sale program. So the lender in theory agrees to a lower payoff and entitlement for the VA borrower will be tied up. Although part of the Veteran’s entitlement will be used, the VA bonus entitlement or 2nd Tier Entitlement could allow a future VA purchase. In order to qualify in the future, the borrower would need to re-establish sufficient credit including a housing payment history.
VA Compromise Sale Eligibility criteria includes, but is not limited to:
- Must document the sellers financial hardship
- Must produce a sales contract that is at a reasonable fair market value
- The closing costs must be reasonable and customary
- There must be no second liens (unless the amount is insignificant)
- The result must be financially better for the government than foreclosing
- To protect the seller’s interest, the seller should make the sales contract contingent and/or subject to the approval of a VA compromise sale
If a homeowner may qualify for a VA Compromise Sale, the realtor or homeowner should contact the homeowner’s current lender. A majority of the servicers have a loss mitigation department.
VA Compromise Sale / VA Short Sale Seller Requirements:
- Once it is apparent that the seller needs to consider the VA Compromise Sale Program, the seller should contact his/her servicer
- A financial statement should be provided and signed by all parties
- The seller should complete a letter of request for a compromise sale to include hardship informatio
- A Compromise Sale Agreement Application should be completed and can be obtained from the servicer
- On loans that originated on or before December 31, 1989, the servicer is required to write off any amount over the max. guaranty of the loan.
VA Compromise Sale Realtor and/or seller requirements:
Upon receipt of an acceptable offer the realtor and/or the seller should contact the seller’s servicer and advise them that they are in the process of submitting a compromise package. This package should contain the following information:
- Sales contract signed by all parties with a contingency which reads: “This offer is contingent upon approval of a VA compromise sale.”
- Good faith estimate projecting closing costs. This document is usually prepared by the real estate agent to facilitate processing (i.e. estimated seller closing disclosure).
- Letter to the servicer requesting consideration of a compromise sale.
- Financial data and supporting documentation.
- Compromise Sale Agreement Application
Other requirements to process a VA Compromise Sale:
- A current VA appraisal must be obtained. If the buyer is obtaining a VA loan, the buyer’s VA appraisal can be used provided the buyer will agree to the same. Otherwise, the seller’s servicer will have to complete a VA appraisal.
- Title is reviewed. As stated earlier, in situations whereby there are second liens or other liens, the seller can request that the lien holder consider releasing the lien and converting the loan to a personal loan.
- A compromise assumption will not be processed without first receiving a statement from the servicer that they are willing to have their guaranty amount reduced by the amount of the claim payment.
- If it appears a compromise assumption is feasible, the buyer must qualify.
VA Short Sale Hardships
- Relocated VA borrowers
- Decrease in income
- Major medical expenses
- Death of a principal wage earner, spouse, or family member
Source for this article: www.benefits.va.gov/homeloans
We hope that this article will provide our service members and Veterans some helpful tools. If you are reading this and work with the military or Veterans, share this helpful information.