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VA Short Sales - Guidelines

05/19/2010
The Department of Veterans Affairs (VA) is a cabinet level branch of the U.S. government responsible for administering benefits to veterans. VA loans offers active and retired veterans, their spouses and survivors a number of valuable benefits including the lowest mortgage rates , life insurance, medical and educational assistance, pension, disability compensation, vocational rehabilitation, and burial assistance.

With five military installations within its borders including the U.S. Air Force Academy, Fort Carson, Peterson AFB, Schriever AFB and NORAD, Colorado Springs is home to thousands of active and retired military personnel. For a number of reasons including a large number of PCS's or Permanent Change in Status, the area is experiencing an increase in short sales among GI mortgage borrowers. A short sale involving a VA mortgage is called an "offer in compromise," "compromise claim" or "compromise sale."

Regardless of the name, the process is the same. It's typically requested when a homeowner receives an offer to purchase his/her home for an amount less than the amount needed to pay off the VA mortgage loan balance. When requesting an offer in compromise, the VA and the mortgage company meet to review the situation. If approved, the VA takes responsibility for paying the difference between the proceeds from the home's sale and the veteran's mortgage balance.
The VA offers this service as a way to help financially-strapped veterans avoid further financial distress. Many lenders, especially in this area, have been authorized by the VA to process offers in compromise (VA short sales) directly through their Loss Mitigation Department.

Other eligibility criteria:

1. The borrower must prove that he/she is experiencing a financial hardship.

2. Property must be sold at fair market value based on conditions in the current market.

3. Property must be free of secondary or other liens.

4. Closing costs cannot exceed what's considered reasonable and customary.

5. The cost of the compromise sale must cost the VA less than the cost to foreclose on the property.

6. Seller must provide a written statement explaining why the sale is necessary.

Other important information
Interested applicants must complete a letter of request plus a financial status report form and a Compromise Agreement Sale Application. Forms can be obtained via the lender or the VA. The sales contract must include a clause stating that the sale is contingent on approval of a VA compromise sale. Additional help can be obtained by contacting the nearest VA loan center.

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