When financial hardship hits, it is important to analyze all options for potential relief. The VA Compromise Sale Program, offered by the Department of Veterans Affairs, gives the borrower the option to sell their property to a buyer who gets his/her own financing or to a buyer who will take over their VA loan.
If you need to sell your home sooner than later, and the only offers you’ve received are lower than your loan balance, a VA Compromise Sale will allow the agency to pay a “compromise claim” to cover the difference versus facing foreclosure and possible damage to your credit score.
Compromise Sale Eligibility
A compromise sale can be considered when one of the following financial hardships exist:
- Veteran/Seller’s employer or financial situation will require relocation
- A decrease in income
- A major medical expense
- The death of a principal wage earner, spouse or family member
In order to take advantage of a compromise sale, the following must be taken into consideration:
- The property must be sold for fair market value
- The closing costs must be reasonable and customary
- The compromise sale must be less costly for the Government than foreclosure
- There must be a financial hardship of the part of the seller
- On loans that originated on or before 12/31/1989, the lender must be willing to write off any debt above the max guaranty.
- There must be no second liens (unless the amount is insignificant). In situations where there are second liens or other liens, the seller can request that the lien holder consider releasing the lien and converting the loan to a personal loan.
- The seller must obtain a sales contract in order to be considered
- To protect the seller, the seller should make the sales contract contingent and subject to the approval of a VA compromise sale.
What The Seller Will Need To Get Started:
- Once it is determined that the seller needs to consider the compromise sale program, the seller should contact his/her servicer.
- A financial statement should be provided and signed by all parties.
- The seller should complete a letter of request for a compromise sale to include hardship information.
- A Compromise Sale Agreement Application should be completed and can be obtained from the servicer.
- On loans that originated on or before 12/31/89, the servicer is required to write off any amount over the max guaranty of the loan.
What The Seller and Realtor Will Need To Get Started:
- 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 projecting closing costs. This document is usually prepared by the real estate agent to facilitate processing
- Letter to the servicer requesting consideration of a compromise sale
- Financial data and supporting documentation
- Compromise Sale Agreement Application
Obstacles That Could Cause A Delay In A Compromise Sale
- Illegible copies of the required documents
- One of the parties on the title refuses to sign the contract
- Inability of the veteran to meet hardship requirements
- Other significant liens are recorded against the property
- The other lien holder is unwilling to convert the loan to a personal loan
- Loan is not guaranteed by VA
- The value of the property will satisfy the total indebtedness (equity).
- The shortage exceeds the VA’s maximum guaranty amount.
- The Veteran is deceased and the administrator or executor of the estate is unknown.
- The offer is substantially lower than VA’s appraised value.
- Veteran/Seller filed bankruptcy
- A breakdown of the buyer’s closing costs were not provided.
If you think you may be eligible for a VA Compromise Sale, please feel free to contact one of our VA loan experts to discuss your options. Learn more about the Department of Veterans Affairs Compromise Sale Program.