VA SHORT SALES

Like the Federal Housing Administration’s (FHA) guarantee, the U.S. Department of Veteran’s Affairs (VA) doesn’t make loans, but provides a guarantee that protects the lender if the veteran defaults on his or her mortgage. This guarantee allows the lender to do away with down payment requirements and to offer more favorable interest rates and terms.

The short sale process for a home with a mortgage backed by a VA loan is similar to that of a traditional short sale but does contain several important distinctions.

The VA calls its short sale program a “compromise sale.” If a veteran owes more on the home than what it’s worth and sells the home, the VA will pay the remaining balance of the mortgage and closing costs. This is the most significant difference between the traditional short sale and the compromise sale: the lender receives the full balance owed by the veteran.

Additionally, as of January 2011, the veteran is entitled to $1,500 for relocation assistance.

Short Sale Program Requirements

The main requirement to undertake a compromise sale is that the veteran is experiencing severe financial hardship that prohibits her from meeting her mortgage obligation. Suitable hardships include:

• Major medical expenses
• A decrease in income
• Death of one of the principle wage earners in the household
• Involuntary relocation

If the veteran has any significant assets, the VA may require that they be sold or cashed in to help offset the mortgage deficiency.

The VA will review the veteran’s situation, looking for the following criteria:

• The home must be sold for current market value.
• Closing costs must be “reasonable and customary.”
• The compromise sale will be less costly for the VA than foreclosure.
• The veteran’s financial situation.
• The date of mortgage origination – if the loan was taken out on or before December 31, 1989, the lender must agree to write off the portion of the debt above the maximum guarantee.
• The home has no other liens.