Compromise Agreement Information For Sellers With V.A. Loans. VA Short Sales
If the seller/homeowner is unable to sell the property for an amount that is greater than or equal to what he/she owes on the loan, including closing costs, VA may pay a “compromise claim”, a VA Short Sale, for the difference in order to allow a private sale to go through.
The seller/homeowner can sell the property to a buyer who gets his/her own financing or to a buyer who wants to assume the loan, if assumable. However, with a compromise/assumption/VAShort Sale, the lender does have to agree to have the amount of its guaranty reduced by the amount of the claim payment. In order to be considered for a compromise/VA Short Sale, several factors must be considered:
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 seller must be willing to sign a promissory note.
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.
Once it is determined that a homeowner may qualify for VA compromise/Short Sale, our company or the homeowner will contact the lender and/or the VA. A majority of the lenders now have a Loss Mitigation Department that have been authorized by VA to process VA compromise/Short Sales. If your lender is not a VA approved Servicer Loss Mitigation lender, VA will process the compromise/Short Sale “in house.”
General Information Regarding Processing A V.A. Compromise/Short Sale Agreement
1. Once it is apparent that the seller needs to consider the VA Compromise/Short Sale Program, the seller should contact VA or his/her lender if they are a VA approved Servicer Loss Mitigation lender. You can access an updated list from the website: www.vba-Roanoke.com.
2. A financial statement is completed and signed by all parties. The seller may obtain this from the lender if the lender has been approved to process the compromise/short sale on behalf of VA. Otherwise, the homeowner may obtain this form from VA. A financial statement from the VA can be downloaded from the V.A website.
3. The seller/homeowner should complete a letter of request.
4. A Compromise Agreement Sale Application should be completed. If the compromise sale will be processed by VA, the application package can be downloaded from the V.A website. If the lender will be processing the compromise sale, an application package must be obtained directly from that lender.
5. On loans that originated on or before December 31, 1989, the seller should be prepared to sign a promissory note at closing agreeing to repay VA for the difference between the sales proceeds and the total debt. This indebtedness may be waived in order to process the transaction and avoid a foreclosure sale.
Company and or Seller/homeowner Requirements
Upon receipt of an acceptable offer we will contact VA or the seller’s lender (if applicable) and advise them that we are in the process of submitting a compromise package. This package will contain the following information:
1. Sales contract signed by all parties with a contingency which reads: “This offer is contingent upon approval of a VA compromise sale.”
2. Good faith estimate projecting closing costs. This document some times referred to as a net sheet, is usually prepared by us or an escrow company.
3. Letter to the lender and VA requesting consideration of a compromise sale.
4. Financial data and supporting documentation.
5. Compromise Agreement Sale Application.
Other Requirements To Process A V.A. 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 lender will have to contact VA for an appraisal assignment. Once an appraiser has been assigned, the lender will order the appraisal directly from the appraiser.
Title is reviewed. As stated earlier, in situations whereby there are second liens or other liens, the seller can request that the lienholder 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 holder 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.
What Happens When A Compromise Slaes IS Approved?
1. A copy of the approval letter from the lender or VA is submitted to the closing attorney or escrow company prior to closing.
2. The closing company will review the approval letter which will include the shortage amount that VA will pay upon completion of the compromise sale.
3. Approval of any additional amounts need to be submitted to VA or to the lender well in advance of the closing date.
4. At the time of closing, net proceeds are paid directly to the obligor’s lender who then files a claim with VA for the difference between the proceeds and the total indebtedness.
5. V.A. can not pay a compromise claim beyond what the loan was guaranteed for. Should VA agree to pay the difference between the sales proceeds and the total debt to complete the compromise/short sale process, the portion of the homeowner’s entitlement used to guaranty this loan will remain tied up until VA is reimbursed in full.