VA loans

VA Loan Rules For Purchasing Foreclosed Properties: Required Repairs

March 5, 2014

VA Loan Rules For Purchasing Foreclosed Properties: Required Repairs


Recently we reported that the VA had issued a circular re-affirming its policies on appraisals as they are done on foreclosed properties. The VA home loan program does permit qualified borrowers to purchase foreclosures, but these homes are subject to the same appraisal and minimum property standards as non-foreclosure home purchases.

One important issue addressed by VA Circular 26-14-5 is what happens when an appraisal on the foreclosed home results in a required repair or correction. Who pays for these repairs or corrections and what is the VA’s stance on them?

According to the circular, “VA requires that all properties, including foreclosed properties, be in a condition that meets VA MPRs, or that the property must be repaired to meet the MPRs prior to loan guaranty. In those cases where repairs are required, the VA fee appraiser must list on the appraisal report any repairs necessary to meet MPRs, and provide an estimate of the fair market value for the property as if all of those repairs have been completed.”

That’s the start of the VA policy on repairs–note that the appraisal will be completed as if the corrections have been made. But when it comes to the responsibility to pay, VA loan rules are clear–this is a matter to be agreed upon between seller and purchaser.

“The seller or the Veteran may negotiate who and/or how the required repairs included in the estimate of value, as noted in the VA Notice of Value will be paid. If necessary, escrow for the Veteran purchaser may be established to accommodate making the required repairs. The escrowing of funds is described in Chapter 9 of VA Lenders Handbook (VA Pamphlet 26-7).”

So buyer and seller must decide what to do and be in agreement over who will pay for the repairs. VA loan regulations normally do not require an escrow account (the lender is free to do so) but it’s clear in cases where appraisal repairs must happen, an escrow account is likely the best way to proceed in order to safeguard the interests of all parties.

Do you have questions about VA home loans? Ask us in the comments section. 

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