VA LOAN UPSIDE DOWN?

VETERANS ADMINISTRATION COMPROMISE LOANS - How to sell when your VA loan is up-side-down.

by Teri L. Anderson, Attorney at Law

Copyright ©1998, Teri L. Anderson All Rights Reserved. No part of this material may be reproduced, transmitted or stored in any manner, in any form or by any means without the express written permission of the author. Permission is granted to reproduce and distribute this text in its entirety, and if by electronic means with a link to the URL http://members.aol.com/ReaLawBuck.

ABOUT THE AUTHOR: Teri L. Anderson is a partner in the law firm of Buck, Anderson & Associates, P.C., specializing in real estate, and real estate closings with offices at:
6088D Franconia Rd. Alexandria, Va. 22554 (703) 921-0809
8401 Richmond Hwy. Suite E Alexandria, Va. 22309 (703) 360-1100
3182 Golansky Blvd. Suite 201 Woodbridge, Va. 22192. (703) 680-0800
233 Garrisonville Rd.,#102, Stafford, Va 22554 (540) 720-5505
1440 Central Park Blvd. Suite 205 Fredericksburg, Va. 22401 (540) 785-6575

E-Mail to Internet: ReaLawBuck@AOL.com

Veterans Administration guaranteed loans feature liberal qualifying and very low down payments. With 40% of home-buyers either a veteran or married to one, it is no wonder this program is popular. Unfortunately, active duty military personnel move often and may not have time to build up sufficient equity to cover the cost of selling their home. When this happens, the home may not be marketable at a price high enough to discharge the VA loan and pay closing costs. How can the seller go to closing and provide clear title?

The Veterans Administration Compromise Loan Program is the answer.

For loans originated before January 1, 1990, the VA will loan the seller funds necessary to pay off an existing VA mortgage and pay selling and closing costs. This program does not forgive the debt but it does allow the seller to sell his property and move on with an extended repayment term. For loans originated after January 1, 1990, VA may forgive the debt (but not restore the Veterans eligibility for future VA loans unless the amount is repaid). Forgiveness is determined on a case by case basis. Job transfers or other hardships are important considerations.

The loan from VA, for the amount of the shortfall, is at 4% interest payable over a term as long as ten years. A deficiency, at settlement, might have crippled the veteran who could not come up with the cash needed to close. At 4% for ten years the monthly payment on $10,000 is only about $100.

Eligibility is determined are on a case-by-case basis. The loan does not need to be in default in order to qualify.

Forgiveness of any debt may be subject to tax by the Internal Revenue Service. Check with your tax professional when filing your return.

Here are the steps veterans should follow:

1) Get a ratified sales contract (can and should be contingent on acceptance into the VA Compromise Program and on Seller’s approval of that acceptance). The sales commission can not exceed 6% and may be subject to reduction.

2) Obtain a payoff statement from the existing lender.

3) Obtain a preliminary HUD-1 closing statement from the closing attorney showing the Seller’s financial obligation to close.

4) Obtain a fair market analysis from a real estate agent/broker.

5) Contact your lender and ask if it has authorization to process the Compromise. If so, you will communicate directly with the lender. If not, you will communicate directly with the VA Compromise Loan Department.

6) Mail or deliver the above to the lender or the VA Compromise Loan Department (address below) along with a statement from the veteran outlining the reasons for selling the property along with any other circumstances, such as transfer, or other hardship. The application letter must also include:

__ the VA loan number
__the Certificate of Eligibility number
__the veteran’s Social Security Number
__the mortgage company name, address and loan number
__the sales and listing broker’s names, addresses and phone numbers
__the closing attorney’s name, address and phone number
__a signed authorization for release of information from the lender to VA.

The lender or the VA will assign a compromise processor who will contact the veteran directly. The veteran will be required to submit financial information for processing.

The VA will determine if a new appraisal is necessary. They will often accept the buyer’s appraisal.

Participation is not automatic. The processing time is approximately 2 to 8 weeks.

VA determines an adjusted payoff considering the sale price, closing and selling costs and the loan balance. VA directs the lender to accept the reduced payoff of the loan and the lender must accept that amount and release the lien against the property. The lender later files a claim with VA for reimbursement of any shortfall. If the loan is not being forgiven, VA supplies the settlement attorney with a promissory note for the veteran seller to sign and establishes the terms for the pay back. The veterans eligibility is not restored until the compromise loan is paid in full.

For assumption transactions, the VA may waive delinquent payments but generally will not cover the costs of sale.

The VA Compromise Loan Program has moved from Washington, D.C. to Roanoke, Virginia.  The new phone number is (540) 857-2018. It has been our experience, however, that directing inquiries directly through the fax number is easier. The fax number is (540) 857-066. The address is VA Compromise Department, 210 Franklin Street, Roanoke, Virginia 22011.

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