Facing a hardship that makes it nearly impossible to pay your mortgage payments is hard enough. Having to face the possibility of foreclosure is even harder, especially if you have a FHA or VA mortgage and have exhausted all options including a refinance and/or a loan modification. That’s where short sales come in hand.
A short sale is where your home is sold for less than owed on the mortgage loan as an alternative to foreclosure. It has it’s advantages and disadvantages. However, it’s disadvantages typically aren’t nearly as bad as a foreclosures. One of the disadvantages is that it’s a lengthy process and and you will not be guaranteed approval. Also, as with a foreclosure, it will have a negative affect on your credit rating. Luckily, there are special programs that exist to help the short sale process complete smoothly.
If you are wondering if there are any short sale programs for FHA or VA mortgages, yes there are. The first one we will look at is for FHA loans and is called the “Pre-Foreclosure Sale Program.”
The basic short sale eligibility requirements for this program are:
* You must be at least 31 days or more behind on your payments by the time of closing
* The property must be occupied by the owner, no rental/investment homes
* The property must be marketed for 3 months
* The mortgagor must provide a hardship letter detailing the hardships that have occurred to make the mortgage unmanageable (ie reduction in income, increase in living expenses, etc); no walk always
There are exceptions, such as in the case of walking away. If the need to default was due to job loss, transfer, divorce, health problems ext, it may be overlooked. And when a property was purchased as a rental investment, or used as a rental for more than 18 months with a hardship related, it might also be overlooked.
An advantage with trying to short sale with this program is that it offers $1000.00 move out incentive to aid the homeowner in finding a new home to relocate.
Compromise agreement information:
If the borrower is not capable of selling the property for an amount that is larger than or equal to what or she owes on the loan (including closing costs), the VA may pay a “compromise claim” for the difference in order to let the private sale to go through. The borrower can sell the property to a buyer who gets his or her own financing or to a buyer who wants to presume the loan. However, with a compromise assumption, the lender has to concur to have the amount of its security reduced by the amount of the claim payment.
To be considered for the compromise sale, factors that may be considered are:
* That the seller must get a sales contract to be considered for the program in the first place
* The property to be sold at fair market value
* Reasonable Closing Costs
* The compromise sale which must be less costly for the Government than foreclosure would be
* Your financial Hardship
* If your loan was originated before December 31, 1989. If so then the seller must be willing to sign a promissory note
* If there are any second liens or any other liens. There must be none. If there are, the seller can request that the lienholder consider releasing the lien or converting it into a personal loan
* That in order to protect the seller’s interest, he or she should make the sales contract dependent and/or subject to the approval of a VA compromise sale.
Once it becomes final that the seller can qualify for a VA compromise sale, the realtor, or even the homeowner then should contact the lender or the VA. The majority of lenders now have a Loss Mitigation Department that have been authorized by VA to process a VA comprise sale. At the end of this package, there’s an attachment that lists VA approved Service Loss Mitigation Lenders. If the your mortgage lenders name isn’t on the list, VA will process the compromise sale “in house.” The list is also frequently updated on the VA website.
If you have any questions regarding this process, you may contact VA at 1-800-933-5499.
1. Once it is apparent that the seller needs to consider the VA Compromise Sale Program, the seller should contact VA or his/her lender if they are a VA approved Servicer Loss Mitigation lender. Attached to this package is a list of VA approved Servicer Loss Mitigation lenders. You can also obtain an updated list from our 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 sale on behalf of VA. Otherwise, the homeowner may obtain this form from VA. A financial statement from the VA can be downloaded from our website.
3. The seller 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 our 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.