Military families have been hit particularly hard by the mortgage crisis. The VA offers some relief in the form of a compromise sale.
If a member of the military gets a divorce, has a permanent change of station, or bought a home on the market that is now under water, he may be unable to meet his mortgage payments and be facing the possibility of foreclosure if he cannot sell the property. But in the current challenging real estate market, he may find that an impossible task. The Veteran's Administration (VA) can help a homeowner in this situation through its compromise sale program.
How it works
The first thing to do is put your home on the market, and see if you can get the sale price that you want. However, that may not be possible with floundering home sales. But you may be able to get an offer that's equal to the current market value, but lower than the total amount of money you owe. That's when you can request a compromise sale from the VA.
In order to qualify, you must meet the following requirements:
- You should be able to show proof of financial hardship, which includes a forced employment relocation, a major medical expense, a reduction of income, or the death of the primary wage earner
- There should be no home equity loans or other second liens
- You must have an executed purchase contract for fair market value
- The home must have a VA appraisal
- The sale needs to result in a savings to the agency over the costs of foreclosure
One of the advantages of a compromise sale is that, in addition to avoiding foreclosure, your credit rating will likely not be damaged.
Compromise loan procedures
If you decide to take this path, contact your lender to see if it's a VA-approved Service Loss Mitigation lender. If it isn't, contact the VA to find one that is. You'll then need to complete a special package designed for compromise loans, which you can get from the lender. If your loan was originated before December 31, 1989, you may be required to sign a promissory note that says you'll repay the VA for the difference between the price the property will sell at, and the total amount of the debt.
Once you've been approved and all the paperwork is completed, you're ready to close. It's best to find an attorney who has experience with VA loans, since additional paperwork from the VA will be required that must be reviewed at closing.
It's not easy to be struggling with your mortgage payments and be forced to sell. But if you have a VA loan, consider a compromise sale to help get out of a bad situation and move forward to a more financially stable life.