VA Compromise Sale Agreement
Under the VA Compromise Sale Program, homeowners, with VA mortgages, have the opportunity to avoid foreclosure with this program. Specifically if a borrower is unable to sell their property for the price equal to or greater than the loan amount, including closing costs, the borrower can request that VA pay a “compromise claim” for the difference. The sale of the property may resume to a buyer with their own financing or one that wishes to assume the loan. In this process the lender does have to agree to have the amount of its guaranty reduced by the amount of the claim payment.
The VA stated factors must be considered for a compromise sale:
- Property must be sold for fair market value
- Closing costs must be reasonable and customary
- Compromise sale must be less costly for the Government than foreclosure
- Must be a financial hardship on the seller
- Loans originated on or before December 31, 1989, seller must be willing to sing a promissory note.
- Must not be a second lien or other liens (unless amount is insignificant). If there are second or other liens, the seller can request that the lien holder consider releasing the lien and converting the loan to a personal loan.
- Seller must first obtain a sales contract to be considered for the program.
- Seller should make the sales contract contingent and/or subject to the approval of a VA compromise sale for their protection.
Upon determining that a homeowner may qualify for a VA compromise sale, the realtor or the homeowner should contact the homeowner’s lender and/or the VA. Many lenders have a Loss Mitigation Department authorized by the VA to process VA compromise sales. For a list of VA approved Loss Mitigation lenders refer to the VA Department Compromised Sale Program Document. The document is dated 2001, but the program is currently in effect.
VA Compromise Sale Program Realtor and/or Seller Requirements:
Once an acceptable offer is made on the homeowner’s property, the realtor and/or seller should contact VA or the seller’s lender, if approved by the VA, and notify them of the process of submitting a compromise package that should contain the following information:
- Sales contract signed by all parties with a contingency which reads: “This offer is contingent upon approval of a VA compromise sale.”
- Good faith estimate that projects the closing costs, which is prepared by the real estate agent to facilitate processing.
- Letter to the lender and VA requesting consideration of a compromise sale
- Financial date and supporting documentation
- Compromise Agreement Sale Application
VA Compromise Sale Program Seller Requirements:
Once seller is determined the need for the VA Compromise Sale Program, the seller should contact VA or the lender if they are approved servicer for VA compromise sales. For a list of approved Servicer Loss Mitigation lenders refer to the VA Department Compromised Sale Program Document or check the updated list at http://www.vba-roanoke.com/.
A financial statement is completed and signed by all parties on a form obtained from an approved lender or the VA. The form may also be downloaded from the VA website.
The Seller should complete a letter of request.
A compromise Agreement Sale Application should be completed. If the lender is VA approved for servicing compromised sales, obtain the application from that lender, if processed by the VA the application package can be downloaded from the VA website.
Loans originated on or before December 31, 1989, the seller should be prepared to sign a promissory note at closing to agree to repay VA for the difference between the sales proceeds and the total debt, however, the debt may be waived in order to process the transaction and avoid foreclosure.
Other Requirements for a VA Compromise Sale:
Current VA appraisal; if the buyer is obtaining VA loan, the buyer’s VA appraisal can be used if agreed to by the buyer, otherwise the seller’s lender will have to contact VA for an appraisal assignment. Once the appraiser is assigned, the lender will order the appraisal directly from the appraiser.
Title is reviewed to determine if there are any liens on the property, if so, the seller can request the lien holder consider the release of the lien and converting to a personal loan.
Compromise Assumption will not be processed without the receipt of statement from the holder that they are willing to have the guaranty amount reduced by the claim amount.
If it appears a compromise assumption is possible, the buyer must qualify.
Upon Approved Compromise Sale:
Copy of lender approval letter or VA is submitted to closing attorney before closing. The attorney/staff will review the approval letter that will include the shortage amount to be paid by the VA at completion of sale. Approval of any additional amounts needs to be submitted to VA or the lender in advance of closing. At the time of closing, net proceeds are paid directly to the seller’s lender who files a claim with VA for the difference between sale price and balance of debt. VA cannot pay a compromise claim beyond what the loan was guaranteed for.
Homeowner Warning: If VA agrees to the compromise sale, portion of the homeowners entitlements used to guaranty the loan will remain unavailable until the VA is reimbursed in full.
There are some obstacles that may delay or cause denial of a compromise sale. Sellers should work closely with a realtor that is familiar with this program and processes and their lender or VA for a successful transaction.
This information was obtained directly from the VA Compromise Program document issued by the Roanoke Office. For a list of Loss Mitigation Approved Lenders and sample documents, you can reference that document here.