Department of Veteran Affairs offers the Compromise Sale Program to help VA borrowers get out from an underwater mortgage that is giving them a financial strain or hardship.
Too often VA buyers have purchased a home that depreciated in value so that their home is now underwater, they have experienced a hardship, and they are unable to sell the home for enough to satisfy the mortgage debt. Foreclosures, short sales, or deed in lieu of foreclosure needs to only be a last resort because of the serious credit ramifications.
A little known solution to these sellers is the VA Compromise Sale Program and all stakeholders face a variety of requirements and shared sacrifice. Since the lender, borrower, and VA all need to agree, there needs to be good communications and documentation by all. The lender will be agreeing to accept a lower payoff and the VA borrower will have part of their VA entitlement tied up until VA is reimbursed in full. Hopefully the VA borrower can then use his / her VA bonus entitlement for VA financing again. Learn more about using your VA Bonus or 2nd Tier Entitlement to purchase a home here
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
Once it is determined that a homeowner may qualify for a VA Compromise Sale, the realtor or homeowner should contact the homeowner’s servicer. A majority of the servicers have a loss mitigation department.
VA Compromise 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 HUD1).
- 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.
Servicers can consider a VA Compromise Sale Program for Underwater & Distressed Sellers when one of the following hardships exist:
- Helps VA borrowers that have been relocated
- Helps VA borrowers that have experienced a decrease in income
- Helps VA borrowers that have major medical expenses
- Helps VA borrowers where there was a 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 because there are always people in need.