A lengthy reader question came in recently about VA mortgages, short sales and compromise claims:
“My husband received orders to PCS in August and we have had our house on the market for the amount we owe plus realtor fees, but to no avail. We have tried to contact to VA to get information on a short sale. After three people saying there is nothing that the VA can do for us and five people saying there is We are left more confused than ever…What is the process that we need to go through for the VA to pay the short sale difference?”
”We were told that we need to contact our lender for a short sale packet and start on the short sale and the VA comes in at the end and pays the difference… Only our lender says that we need to go through the VA and they have to do the short sale. So where do we go? Need some real advice and guidance.”
There are two basic parts to this issue–the VA short sale and the VA compromise claim, which would potentially see the Department of Veterans Affairs stepping in to pay the difference between the sale price of the home and the amount still owed on the VA home loan.
According to the VA official site, “If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan, VA may pay a ‘compromise claim’ for the difference to help you complete the sale. You must contact VA to discuss the situation and get prior approval for a sale with a compromise claim payment. Some mortgage companies are authorized by VA to approve a sale with a compromise claim.”
As you can see from the quote above, the borrower is required to coordinate a compromise claim with the VA prior to selling the property. This means that the VA will NOT automatically pay a compromise claim in the case of a short sale–it’s not a safety net for all borrowers. It’s a contingency plan the borrower must get prior approval for, and the VA does not approve all applicants. The VA may require the borrower to demonstrate financial hardship.
The borrower must also coordinate with the lender on short sales, so this is a process that involves both the VA and your loan officer. For specific advice on your particular situation, find your Regional VA Loan Center and talk to a representative.
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