VA Loans and Natural Disasters: Colorado, Minnesota, and Florida
Everyone has seen the recent headlines about natural disasters in Colorado, Minnesota, and Florida. Whether it’s forest fires, Tropical Storm Debbie, or thunderstorms and flooding, all three of these areas have many things in common–including the presence of veterans who own homes purchased with VA guaranteed mortgages and those veterans who have applied for VA home loans.
For those who already own properties bought with VA mortgages, the course of action in such cases is clear–review any damage, contact the lender and the Department of Veterans Affairs, make appointments with the insurance company, and contact FEMA to see what other assistance may be offered.
But what about borrowers who have either recently closed the deal on a home with a VA loan or who were waiting to close when the disaster struck?
The Department of Veterans Affairs offers help and advice to home owners and buyers who have experienced a natural disaster in the form of a downloadable PDF file called VA Policy Regarding Natural Disasters. It has plenty of resources and links for home owners, but also includes the following for those who have closed their VA mortgages just prior to the incident:
“Loan Closed Prior to Disaster. Any loan closed prior to the date of the declared disaster is eligible for VA Guaranty without regard to the disaster. The “Information for Mortgage Servicers” section below applies to these cases.” We’ll discuss that information in a moment. But first, a look at the VA policy for borrowers who were waiting to close the loan when disaster struck:
“Properties Appraised Prior to Disaster. If the property was appraised on or before the date of the declared disaster and not closed prior to that date, the following items must be submitted with the VA guaranty request” which is found at the link mentioned above.
What does the VA say to lenders who have issued VA home loans? When natural disasters strike and the affected area is deemed a presidentially declared disaster area, the following applies:
“Assistance to Homeowners. VA encourages servicers of guaranteed loans in disaster areas to extend all possible forbearance to borrowers in distress. VA regulations on Prepayments (38 CFR 36.4311), Advances (38 CFR 36.4314), Loan Modifications (38 CFR 36.4315) and Supplemental Loans (38 CFR 36.4359) may be of assistance in appropriate cases. It is the loan holder’s responsibility to counsel borrowers concerning assistance that may be available.
Moratorium on Foreclosures. Although the loan holder is ultimately responsible for determining when to initiate foreclosure and complete termination action, VA encourages holders to establish a 90‐day moratorium on initiating new foreclosures in the disaster area.
Insurance Requirements. VA regulations (38 CFR 36.4329) require that lenders and holders ensure that homes financed with VA‐guaranteed loans be sufficiently insured against hazards. Insurance proceeds are to be applied to the restoration of the security or the loan balance. The burden of proof is upon the holder to establish that no increase in VA’s ultimate liability is attributable to failure of the holder to have the property properly insured or properly apply an insurance loss settlement.”