What is a VA Compromise Sale?
A VA compromise sale is an opportunity for active duty military members who receive PCS orders and have to sell their home to do so without risking serious financial loss. Simply put, a VA compromise sale allows the service member to avoid foreclosure on the home and to recover from the underwater sale more quickly without the stress of debt collectors. It’s a service that is only provided to active duty military members with PCS orders – and it is one that can help a military member quite significantly.
How a VA Compromise Sale Works
Service members facing a home sale that will return less than they owe on the mortgage may be able to request a VA compromise sale. Once the homeowner receives an offer on the house that is of fair market value but is still lower than the amount due on their mortgage, he or she can ask the VA to approve the compromise sale. The VA will then review the situation in tandem with the mortgage company. If approved, the VA will pay the difference between the sale offer and the mortgage balance owned on the VA mortgage.
It should be noted, however, that a VA compromise sale can negatively affect the service member’s credit profile. When a home is sold for less than what’s owed, whether it’s through a foreclosure, short sale, or compromise sale, the lender who originally made the loan can report negative information to the credit bureaus. This derogatory information then ends up on the service member’s credit report.
Who’s Eligible?
The purpose of a VA compromise sale isn’t simply to help active duty personnel who decide that they want to sell one home and buy another. It is a system that was established specifically to help service people with PCS orders who must sell their home for relocation reasons, divorce, marriage or similar circumstances beyond the service person’s control. The VA compromise sale is intended to help create the home sale while covering losses that the federal government might otherwise have.
For the VA to go ahead and consider a VA-financed property as part of a compromise sale, a number of considerations must be met. The borrower has to show financial distress and explain in a statement to the VA why the home can’t be sold for the amount that is owed. The sale price of the home must fit within current market trends and there can not be significant second liens on the home. The VA appraisal must support the fair market value. Finally, and quite significantly, the compromise sale needs to make sense for the VA, meaning that the sale has to cost less than a foreclosure would cost.
Benefits of the VA Compromise Sale
For any active duty military member with PCS orders looking at an underwater sale, a VA compromise sale may make more sense than a foreclosure. With a VA compromise sale, the home doesn’t become a VA-owned property as it would with a foreclosure. While there are drawbacks to a compromise sale, such as negatively-affected credit, it can be a better solution than a foreclosure. Be sure to consult the VA, your tax advisor, lender, and real estate agent prior to proceeding with a VA compromise sale.
Source: VA Benefit website
