Despite news of a real estate market recovery, many American are still having trouble making their loan payments or selling their homes – for the amount owed on their loan(s) when they need to sell. If you are in one of these situations, you may be looking for solutions and information about your options.
All potential home loan “workout” situations take time. If you cannot make your payments, or need to sell an underwater house it’s best to start early in looking for a solution. The foreclosure process is not a long one (approximately 120 days from a missed payment).
Lenders and servicers are not always especially helpful, some are. Here are the basic loan “workout” scenarios.
Short Sale (or VA Compromise sale for VA Guaranteed loans)
Deed in Lieu of Foreclosure (DIL)
Let’s look at these options:
Loan Modification: In this scenario, the servicer agrees to give you a lower monthly payment for a set period of time. This is a good solution but not necessarily easy to achieve. It’s most readily available for borrowers who have a documented hardship (i.e. illness, new disability, death in the family). Some borrowers have also been successful getting a loan modification due to a job loss.
Repayment plan – this is just a short term high payment option to stop a foreclosure. It’s used for borrowers who are in a position to get current fairly quickly. The servicer offers equal payments that take in the current and back due payments so the monthly obligation is higher for a short term.
Short Sale (or VA Compromise sale for VA Guaranteed loans) If you want to keep your home, this may not be a welcome solution. However a short sale or VA Compromise Sale should mitigate the damage to your credit report and may help you with the opportunity to use your VA entitlement again (more on that later). This is the ideal solution for a borrower who no longer needs to keep the home due to a relocation and cannot afford to keep it as a rental property (consider this first!). With either type of sale, the servicer agrees to take less at closing than what they are owed. You will be working with a real estate agent or broker. Be sure to select a real estate broker who is familiar with the type of sale you are pursuing. The good news is that you do not have to pay your real estate agent or broker in a short or compromise sale. The servicer absorbs most sales fees.
Deeds in Lieu of Foreclosure (DIL) are pretty rare. Servicers usually agree to a DIL if the borrower and their agent cannot produce a buyer at a price equal to the servicer’s appraisal. This is normally a final solution before foreclosure and after a sale effort.
With any type of workout, timing is key for two reasons. One is to avoid foreclosure. The other is to have the least amount of impact on your credit. The fewer payments you miss, the better for your credit score. You are also better off if a foreclosure notice is not filed.
How the VA can help:
Veteran borrowers called up to active duty may be able to request relief pursuant to the Servicemembers Civil Relief Act (SCRA). SCRA is intended to ease the economic and legal burdens on military personnel during their active service. For more information about SCRA, please click on the following link Benefits.VA.Gov/SCRA:
For Veterans with non-VA guaranteed Home Loans home loans
Unless you have a VA guaranteed loan, the VA does not have authority to intervene on your behalf. So you will need to work with the loan servicer. You can however call the VA Loan Guaranty office to speak with a VA Loan Technician for advice on approaches to take with your servicer. Their number is (877) 827-3702.
For Borrowers with VA Guaranteed loans
The loan servicer (the company where you make your payments) has the primary responsibility of working to somehow resolve a default (whether it’s a successful solution for the borrower or a foreclosure). However in cases where the servicer is unable or unwilling to help a Veteran borrower, Loan Guaranty has Loan Technicians who can take an active role in interceding with the servicer to explore all options to foreclosure. Service members or Veterans with VA guaranteed home loans can call (877) 827-3702 to reach a Loan Specialist.
For all Veterans
National Call Center for Homeless Veterans
Veterans who feel they may be facing homelessness as a result of losing their home can call (877)4AID VET (877-424-3838 or go to http:www.va.gov/Homeless/NationalCallCenter.asp
Other helpful resources
The Department of Housing and Urban Development (HUD) offers assistance to homeowners through local counseling agencies.
Another unique and smaller resource is Inside Out Community Ministries.
Me! I am happy to talk with you about your loan and your situation. You can call me at (916) 837-4500 or send me an email at
Pamela@Ask-Pamela.com. I will certainly be happy to tell you what I know and will work with you to get things pointed in the right direction,
I understand that you may be in a difficult situation now. Difficult situations call for tough choices. The best actions that you can take are to research your options thoroughly, then take the most favorable option available to you. Whatever the short-term outcome, look to the future and rebuild your assets and credit.
Success is how high you bounce when you hit bottom.”
– General George S. Patton