VA Compromise Memo

Posted by on Aug 9, 2011 in Articles, Memos | Comments Off on VA Compromise Memo

Galvin Realty Law Group, P.S.

 

MEMORANDUM

 

If a VA borrower is approved for a compromise sale, the VA steps in to pay the difference between the offer and the amount which remains due on the VA loan post-short sale.  The VA is not required to approve compromise sales.  Also, the mortgage company can sometimes approve sales on behalf of the VA through the VA Servicer Loss Mitigation Program.

 

There are several requirements that must be met for the VA to approve a compromise sale:

 

-Borrower must demonstrate financial hardship

-Home must be sold at fair market value based on current market conditions

-No second liens are permitted (but, exceptions sometimes made if the amount is “insignificant”)

-Closing costs must be “typical” for such a sale

-VA compromise sale must cost the government less than if the home went into foreclosure

-Sale requires VA appraisal

-Borrower must provide statement explaining why he/she must sell the property

 

At closing, the net proceeds are paid directly to the mortgage company who then files a claim with the VA for the difference between the proceeds and the pay-off amount.

For loans originated on or before December 31, 1989, the seller may be required to then sign a promissory note in favor of the VA.  The amount is always less than the amount the homeowner would owe VA if a foreclosure sale takes place, and monthly payments are arranged based on the homeowner’s financial ability.  For loans originated on or after January 1, 1990, the borrower should be released from any deficiency on the first.  Regardless of when the loan was originated, the compromise sale will likely affect the borrower’s eligibility for other benefits down the road unless the deficiency is paid back in part or in full.

If the VA borrower is looking to keep the home, the borrower may apply for a HAMP modification, a HARP refinance, or a special VA forebearance plan.  Borrowers should contact a VA loan service representative at (800) 827-1000 for counseling.

 

The following articles are published for informational purposes and not for the purposes of providing legal advice. Please contact Galvin Realty Law Group at 425.248.2163 for a consultation about your specific needs and circumstances.