November 10, 2017

VA Short Sales – The VA Compromise Sale Process

If you have a VA loan and owe more than your home is worth, but need to sell anyway – VA has a workout solution: THE DEPARTMENT OF VETERANS AFFAIRS COMPROMISE SALE PROGRAM

If you have a VA loan and owe more than your home is worth, but need to sell anyway – VA has a workout solution: THE DEPARTMENT OF VETERANS AFFAIRS COMPROMISE SALE PROGRAM

Like any other government short sale solution, VA has a very strict and specific process, however after completing many VA compromise sales, I have found them to be quite predictable and reasonably fast (for a shortsale anyway).

VA considers several factors when a homeowner is when seeking approval for a VA compromise sale:

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Like any other government short sale solution, VA has a very strict and specific process, however after completing many VA compromise sales, I have found them to be quite predictable and fast (fast for a short sale anyway).

VA considers several factors when a homeowner is when seeking approval for a VA compromise sale:

  • The property must be sold for fair market value.
  • The closing costs must be reasonable and customary.
  • The compromise sale must be less costly for the Government than foreclosure.
  • There must be a financial hardship on the part of the seller.
  • On loans that originated on or before December 31, 1989, the lender must be willing to write off any debt above the max guaranty. 
  • There must be no second liens or other liens (unless the amount is insignificant). 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.
  • The seller must first obtain a sales contract in order to be considered for the program.
  • 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.

The property must be sold for fair market value.

The closing costs must be reasonable and customary.

The compromise sale must be less costly for the Government than foreclosure.

There must be a financial hardship on the part of the seller.

On loans that originated on or before December 31, 1989, the lender must be willing to write off any debt above the max guaranty.

There must be no second liens or other liens (unless the amount is insignificant). 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.

The seller must first obtain a sales contract in order to be considered for the program.

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.

The VA compromise sale process is not very different from any other standard short sale program and the same basic steps apply.

The most notable difference between VA most other short sales is how the remaining debt is handled. While in most short sales the deficiency balance is forgiven and then becomes a taxable event to the homeowner, VA neither completely forgives the balance or requires repayment. Instead, should VA agree to pay the difference between the sales proceeds and the total debt to complete the compromise sale process, the portion of the homeowner’s entitlement used to guaranty this loan will remain tied up until VA is reimbursed in full.

The VA compromise sale process is not very different from any other standard short sale program and the same basic steps apply.

The most notable difference between VA most other short sales is how the remaining debt is handled. While in most short sales, the deficiency balance is forgiven and then becomes a taxable event to the homeowner, VA neither completely forgives the balance or requires repayment. Instead, should VA agree to pay the difference between the sales proceeds and the total debt to complete the compromise sale process, the portion of the homeowner’s entitlement used to guaranty this loan will remain tied up until VA is reimbursed in full.

Minna Reid

Minna Reid is a Connecticut Realtor and the Broker-Owner of Reid Real Estate Group. The Reid Group offers years of real estate experience, intimate knowledge of the local market and the highest levels of customer service and professionalism to help guide you through all of your real estate transitions.

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