VA Relocation Assistance for Short Sale and Deed-In-Lieu of Foreclosure
No VA borrower wants to think losing their home is a possibility, but in some cases it’s unavoidable due to personal financial issues, job loss, medical issues or related problems. Foreclosure is a difficult process–it changes credit ratings, requires a waiting period before the VA borrower is eligible to try to buy a home again, and can lower the property value of the home being foreclosed upon.
But there are alternatives to foreclosure–even though some of those alternatives still mean the buyer must give up the home purchased with a VA guaranteed loan, they are preferable to foreclosure.
The Department of Veterans Affairs prefers to offer help to homeowners and financial incentives to lenders to encourage all possible alternatives to entering foreclosure procedures. According to the VA official site, “For over 15 years, VA has paid incentives to servicers successfully completing alternatives to foreclosure, and beginning in 2008, VA started paying incentives to servicers for successful repayment plans, forbearance agreements, and loan modifications.”
Recent developments have given homeowners and loan officers more options when it comes to processing a VA short sale or deed-in-lieu of foreclosure. Homeowners can now take advantage of relocation assistance when involved in a VA short sale or deed-in-lieu.
Recent changes to VA regulations state, “Effective immediately, VA is authorizing servicers to advance $1,500 in relocation assistance to borrower occupants who complete a short sale with a VA compromise claim or who execute a Deed-In-Lieu”.
The VA rules also point out that this relocation assistance is to be listed as a reimbursable expense on the bank’s claim. Regulations prohibit the buyer from getting cash proceeds from a short sale, but the VA does not consider the relocation assistance money to be part of the cash proceeds of the sale.
Relocation assistance is helpful in many ways, and not just to the homeowner. Deed-in-lieu and short sale agreements require the home to be presented in good condition (“broom clean” is the term used in the VA lender’s handbook) and under these arrangements the home doesn’t sit vacant for extended periods of time, subject to vandalism and other issues that can lower property values. The former owner gets some financial help in the process and avoids having a foreclosure listed in his or her credit history.