A VA compromise sale happens when a Veteran is unable to sell the home more than or equal to the outstanding mortgage amount owed plus closing costs.
VA compromise sale is the VA’s version of a short sale. It’s an option for Veterans and their families who have trouble keeping their homes securing their VA loans but don’t want to lose it ultimately to foreclosure.
If you are a Veteran looking in that direction, here’s a short guide to VA compromise sale. Find out how to qualify for the transaction, including guidelines and requirements.
VA Compromise Sale, in Short
VA compromise sales are the short sale of VA borrowers. In a regular short sale, the borrower is allowed to sell the home for less than the amount he/she owed on the mortgage.
A compromise sale works the same only that the Department of Veterans Affairs pays the difference between the outstanding amount owed on the mortgage and the home’s current market value up to the amount it guaranteed the loan for.
This compromise claim effectively allows the private sale to go through as noted in a VA document. There must be prior agreement on the part of the lender/loan servicer to have its loan guaranty reduced by the claim paid.
On the part of the Veteran involved in the compromise sale, the portion of his/her entitlement used in the home will be “tied up” — meaning this entitlement will only be restored once he/she has repaid the VA loan.
This compromise sale must be more cost-effective than a foreclosure.
How to Qualify for VA Compromise Sale
While short sales don’t necessarily shun anyone out of buying a home in the future, they do leave a negative mark on the credit report. They also lower credit scores.
But for some Veterans and their families, selling their homes via short sale may be the only viable option left.
So, how do you qualify for short sale the VA way?
As a seller/homeowner, you must demonstrate financial hardship. It could be that your current financial situation requires you to move out of the home or relocate. Other acceptable reasons are decreased income; death in the family, e.g. principal wage earner; or major medical expense.
But if the sale is motivated by a desire to move into a bigger home or that property values have fallen in the area, neither is considered financial hardship. This financial hardship information is included in your letter of request for compromise sale.
Give your loan servicer a call and tell them you can no longer afford to make your monthly mortgage payments and want to sell your home through a compromise sale.
You will also need the help of a real estate agent to list your home and gather documents such as good faith estimate for closing costs, sales contract, letter to the servicer, financial information, and your compromise sale application.
The sales contract must be contingent on the approval of the compromise sale request.
There’s no presumption or assumption of compromise if the loan servicer does not agree to the reduction of its guaranty via the claim to be paid by the VA. Under this compromise assumption, the buyer is assumed to be qualified.
You or your loan servicer must obtain an appraisal whose requirements are in place through October 1, 2019. If the buyer uses a VA loan, you may use the VA appraisal upon the buyer’s agreement.
You are required to sell the property at a reasonable price based on its fair market value. Closing costs to transfer ownership of said property must be reasonable, too.
The property must be sold free and clear of all liens. If there are second-priority liens, for example, you may ask the lienholder to release the lien.
Approval of Compromise Sale
Your loan servicer will submit a letter of approval to the closing attorney prior to the closing date.
At the closing, the loan servicer will receive the net proceeds of the sale and file a claim to the VA for the shortfall between the sales price and the mortgage amount owed.
VA compromise sale is listed as one form of loan management. If your financial circumstances come that, contact your loan servicer immediately.