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VA Loans: Why It’s Important to Avoid Foreclosure Proceedings

February 17, 2019

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VA Loans: Why It’s Important to Avoid Foreclosure Proceedings

As written before in this blog, nobody applies for a VA home loan thinking about default or foreclosure as a possibility. But circumstances can change; spouses lose jobs, military people can be affected by reduction-in-force cuts, and rising prices on food and gas can make it difficult to pay the bills.

Some borrowers have a distorted idea of what it means to experience a foreclosure. Some believe that foreclosure simply results in the loss of the home, which leads some desperate home owners to simply walk away from the home completely. But foreclosure is much more than simply the bank taking the home back after a borrower stops paying the monthly mortgage loan payments.

Legal fees are one of the first things a borrower is liable for, whether the loan is a VA insured mortgage, conventional loan or a sub-prime mortgage. Any fees the bank may have to pay a lawyer to initiate foreclosure proceedings could be passed on part or in whole to the borrower.

Some borrowers who try to save the home with refinancing, loan modification or other means often discover they must pay any legal fees in addition to the delinquent loan amount in some circumstances.

There’s another reason why borrowers should avoid foreclosure proceedings if at all possible. Banks may not foreclose and/or repossess the property right away. The home owner may find the entire process can drag on from the end of one year to the beginning of another or longer.

When this happens, the borrower is liable for any property taxes incurred as long as they have legal possession of the home. From the time foreclosure proceedings are certain to the time they are carried out, the home owner may be responsible for two years of property taxes they can’t afford to pay.

According to the VA official site, “The US Department of Veterans Affairs urges all veterans who are encountering problems making their mortgage payments to speak with their servicers as soon as possible to explore options to avoid  foreclosure….”

If you have a VA loan and are in financial difficulty, contact the VA as soon as possible to avoid default and to make arrangements for VA loan or credit counseling, plus intervention where appropriate between the VA and your lender.

8 Comments
  1. Leeana Anderson

    Hi - if a veteran decides to short sell his home, will his children lose their college benefit?

    • Joe Wallace

      Hi Leeana, are you referring to GI Bill benefits? Which college benefits do you mean specifically?

  2. william g grayson

    i am a retired navy,and 74 yrs old ,,my wife just passed away,my daughter will now be my caretaker,,she will move in with me along with her family,,i have to find a larger residence for us.will the va consider a compromise claim,and how do i do this and usually how long does it take??

    • Joe Wallace

      Your best bet is to call the VA directly at 1-800 827 1000 to discuss your options. But in general--not all sellers are eligible to get a VA Compromise Claim. The homeowner must show financial hardship and demonstrate a legitimate need to apply. In cases where the VA does approve a compromise claim, the seller’s ability to apply for a new VA home loan is affected–the VA has taken a loss on the mortgage, and according to VA guidelines, “the veteran usually remains liable to VA for the amount of the claim payment.” Until the VA compromise claim has been repaid, the VA may not restore VA loan eligibility. Consider this carefully before choosing to go that route as it can affect your future plans to purchase another home.

  3. John Murphy

    Hi,I purchased my home back in June 2012 in Fresno, CA with the VA Loan and I am now transferring due to a job promotion in September 2013 to Denver, CO (I am a civilian Federal Employee). My question is this, my Wife and I have incurred over the past few months substantial debt due to a car accident, emergency dental care, lower wages and trying to save money for our move ON TOP OF my mortgage and bills. We are barely squeaking by. We owe 255k on our home and it looks as if our home will be appraised for around that if not lower and make it difficult for us to straight out sell it and force us to take the short sale (compromise sale route). Could you give me more information on the process for a VA short sale and the possible consequences of a VA Loan Foreclosure? Can the VA come after me for the money they lost on the loan if it ends up being foreclosed on? I do not want to go this route but I want to get all my facts straight.

    • Joe Wallace

      VA short sales require coordination and participation of the current lender--you'll need to get in touch with the lender to make arrangements. VA loan rules state that the borrower is liable for any loss or indebtedness that comes as a result of a VA short sale or foreclosure. You won't be able to apply for another government backed mortgage loan (FHA or VA) until such indebtedness is addressed to the government's satisfaction. For assistance on these issues contact the VA directly at 1-800 827-1000.

  4. Neil

    hey i've lost 2 jobs now and been forced to move and work for less than 50% of what i was making, the market crashed where my VA backed town home is and after meeting with a Realtor in the best of cases i'd need 15-20k at closing something i don't have nor have anyway of securing (already sold extra cars/cashed in IRA's etc...) so I may have to foreclose on the home (not behind yet but I can't pay rent in my new location and the mortgage to.) i'm wanting to use my GI Bill to pay for another bachelors degree to help me rebuild my life and start over. Will the foreclosure affect those benefits?

    • Joe Wallace

      This is an issue you should take up with the VA directly by calling 1-800 827-1000.

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