The VA Loan Escape Clause: A Reader Question
Borrowers cannot, under the rules and regulations of the VA loan program, be forced to purchase a home when the appraised value of that property is lower than the sale price. Why? Because in such cases, the difference between the asking price and the appraised value of the home must be paid in cash by the borrower–it cannot be financed.
The VA will not allow the borrower to be forced to accept such terms — the borrower is free to accept the sale price and pay the difference out of pocket, but he or she cannot be required to do so.
The Department of Veterans Affairs official site has a sample VA loan escape clause that is downloadable as a .pdf file. It states:
“It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs. (Authority: 38 U.S.C. 501, 3703(c)(1))”
This clause is in effect regardless of whether or not the purchase agreement specifically mentions it. Borrowers and sellers who need assistance with the VA loan escape clause or how it works should contact the VA directly at 1-800 827-1000.