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VA Compromise Short Sale For Those With VA Mortgages

The VA Compromise Sale Program is offered to active and non-active duty service members who have a VA mortgage and need to sell their home for less than what they owe.  The home owner must be experiencing some level of “hardship” such as PCS orders, involuntary loss of job, unexpected medical costs, etc.  Your home must be listed at fair market value, and all reasonable closing costs are typically paid by your lender.  Selling under the VA Compromise Sale Program will protect your assets and even more importantly, will have a far lessor impact on your credit score over a foreclosure or a Deed in Lieu of Foreclosure.

HOW IS MY CREDIT SCORE AFFECTED?  It’s impossible to predict with 100% certainty how your credit score will be affected after a short sale, but past VA sellers who we assisted, who were not in behind on their mortgage payments and were current on all other debt obligations, only saw a 28-35 point drop.  However, sellers who were behind on their mortgage payment and other debt obligations reported a drop by as much as 80-120 points.  In all situations, everyone’s credit scores typically rebounded after a few months.

HOW WILL THIS AFFECT MY FUTURE VA MORTGAGE PRIVILEGES? Under the VA Compromise Sale Program, your mortgage company will receive approximately 85% of the loss from the government, so your lender is a lot more inclined to agree to the short sale.  In our experience, we have a 100% track record of closing all of our VA Compromise Short Sales. Veterans are not allowed to borrow against that loss or deficiency until that portion is repaid, but veterans are not forced to repay it at all.  Many of our previous veterans who sold as a short sale years’ ago decided to purchase another home using an FHA or conventional mortgage placing 3%~5% down.

CAN MY MORTGAGE COMPANY MAKE ME CASH OUT MY ROTH OR IRA INVESTMENTS?  No, only the IRS can demand such actions.  But based on previous situations with sellers who had a conventional mortgage (not VA or FHA), we suggest that large liquid cash savings (over $30,000~$60,000) be converted into IRA’s or similar before going through the short sale process, as lenders may try to have you contribute some cash to the closing if they see you have $60,000 sitting in a savings account. Contact your financial adviser or CPA for more information and advise.

HOW DO I START THE SHORT SALE PROCESS?  Call us as soon as you know you will be relocating out of the area (PCS or job transfer), or as soon as you are beginning to face a financial hardship. We’ve had some clients call us when they’re already 7 months behind in their mortgage payments, and that simply makes negotiating your short sale a lot more difficult. Our real estate attorney team recently saved an FHA mortgage from active foreclosure that was already 7 months late, but it almost didn’t happen. We know it’s tough to admit to yourself that you may be in trouble, but do not procrastinate in time of trouble as it can only make your situation worse.

I HAVE NO MONEY – HOW DOES EVERYONE GET PAID?  Your mortgage company will pay for all of your Realtor fees, grantor’s taxes, seller’s closing attorney fees. And 99% of the time, they’ll also pay up to 3% of a buyer’s closing costs. Every mortgage company has different guidelines they must adhere to, based on the type of mortgage you have; sometimes a lender will pay a buyer’s closing costs, but they will not pay for the buyer’s title insurance policy (which is typically part of a buyer’s closing costs). But your mortgage company will pay for all of your listing fees and closing costs.

We advise that you never agree to a Deed in Lieu of Foreclosure because doing so is treated the same as a foreclosure, and selling under the VA Compromise Sale Program or any other short sale program, is your best option as it protects your credit score, and legally allows the borrower to walk away from all mortgage debts.

Depending upon your individual income tax bracket and other conditions, you may or may not have to report the shortage as taxable income at the end of the year. For additional information, please contact a tax advisor.  Click here for additional information.

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