compromise sale agreements

8/3/2019 Compromise Sale Agreements

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SHORT/COMPROMISE SALE:A Short Sale/Compromise Sale is an option for homeowners who find the market value of theirhome is less than the amount owed. The mortgage company will review compromise saleoffers and if the sale is approved by the lender and the VA will pay the difference between thenet proceeds of the sale and the amount owed to the mortgage company if the loan isguaranteed by the VA. Homeowners considering the short/compromise sale option shouldcontact their mortgage company before attempting to sell the home to discuss the criterianecessary to use this option.

Example: A Short Sale can be considered for homeowners who have lost the ability to maintainmortgage payments and attempted, unsuccessfully, to sell the house at full price. Homeownerswith VA guaranteed loans can visit www.vba.va.gov/ro/south/spete/rlc/and enter CompromiseSale in the search field for more information on this option.

PROS

A Short/Compromise Sale can be beneficial for situations in which the homeowner isfacing foreclosure and needs to sell a home that is undervalued.

In most cases the homeowner is released from liability through the Short/Comprise Saleprocess if the loan is guaranteed by the VA. If the loan is conventional a lender must agreein writing to waive the collection of any deficiency. Homeowners with conventional

mortgages should request the waiver prior to completion of the short /compromise sale.

CONS

On VA guaranteed loans, this option can affect the homeowners ability to use the VAentitlement for future home purchases.

On Non-VA guaranteed loans, the lender has the option of establishing a debt for theamount of the deficiency against a homeowner.

DEED IN LIEU OF FORECLOSURE:This option addresses borrowers who have lost the ability to maintain their mortgage and haveattempted to resolve the delinquency and found that the other foreclosure avoidance options arenot feasible. Deed in lieu of foreclosure involves the voluntary transfer of the property from the

borrower to the mortgage company in an effort to avoid foreclosure.

Example: When a borrower is forced to leave the area due to unforeseen circumstances andcan not maintain two households. The first option would be to attempt a full-priced sale. If afull-price is not possible the homeowner should attempt a short/compromise sale. If ashort/compromise sale is not an option then the homeowner can request that the mortgagecompany consider a Deed-in-Lieu of Foreclosure.

PROS

In most cases the lenders acceptance of the deed in lieu of foreclosure releases thehomeowner of liability.

CONS This option can effect the homeowners ability to use the VA entitlement for future home

purchases.

The property cannot have any active liens.

For more information on homeowner assistance programs for non VA guaranteed loans contact theHope Now Alliance at 888-995-4673 or visit www.financialstability.gov andwww.makinghomeaffordable.gov .

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http://www.vba.va.gov/ro/south/spete/rlc/http://www.financialstability.gov/http://www.makinghomeaffordable.gov/http://www.makinghomeaffordable.gov/http://www.financialstability.gov/http://www.vba.va.gov/ro/south/spete/rlc/


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COMPROMISE

SALE

AGREEMENTS

DEPARTMENT OF VETERANS AFFAIRS

REGIONAL LOAN CENTER

LOAN ADMINISTRATION

PO BOX 1437

ST PETERSBURG FL 33731

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RULES FOR A SHORT SALE

YOU must have either defaulted on the loan or have been placed in acircumstance where default is imminent. NOTE: You do not have to be in default to

request a short sale, however, upon completion of the short sale review you will be atleast 61 days delinquent because the lender will cease to accept payments from youonce the review process begins.

YOU do not have the assets to make up the shortage needed to close the sale.

There must be a cost savings to the VA by allowing the short sale over aforeclosure.

The lender must net at least 88.13% of the market value.

STEPS TO A SHORT SALE

CONTACT YOUR LENDER, advise them of your situation, and ask them to sendyou a short sale package to complete.

o This package requires a hardship letter (statement explaining why youcan no longer afford the property and request for a short saleconsideration), a list of expenses, & proof of income.

o Remember that you, the homeowner, cannot receive any cash from thissale.

CONTACT A REALTOR and ask them to list your home at the current marketvalue. NOTE: Your homes current market value is obtained through a VA

appraisal, which your lender will order once they receive your completed shortsale package and signed sales contract.

OBTAIN ESTIMATED COSTS. Once an offer is received your realtor will need tosubmit a signed sales contract (between you and the buyer) along with anestimated HUD 1 to the lender for their review.

o It is advisable that any offer you receive is at the market value.o A HUD 1 is a closing statement showing all charges and the net proceeds

to be applied to the mortgage.

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OBSTACLES TO A SHORT SALE

Missing, illegible, or un-signed documents. The short sale is not cost effective or offer is too low. Issues with closing costs or realtor commissions.

SHORT SALE EXAMPLES

EXAMPLE 1$154,822.66 > unpaid principle balance$110,000 > market value$103,412.00 > net proceeds to lender

The above short sale was approved. Remember that the lender must net at least88.13% of the market value in this case 88.13% of $110,000 would equal to$96,943.00 but the lender received $103,412.00. The VA paid a claim in the amount of$39,987.59 because this was the maximum guaranteed amount (25% of unpaid principlebalance) plus incentive for completing the sale over a foreclosure.

EXAMPLE 2$162,048.64 > unpaid principle balance$123,382.56 > market value$122,317.07 > net proceeds to lender

This short sale was also approved because the lender netted more than the required88.13% of the market value. The minimum the lender could have netted would havebeen $108,737.05 ($123,382.56 x 88.13% = $108,737.05).

EXAMPLE 3$162,048.64 > unpaid principle balance

$123,382.56 > market value$107,100.07 > net proceeds to lender

This short sale was denied because the lender would receive less than the 88.13% ofthe market value (the minimum the lender should net is $108,737.05). In this instancethere are several options available:

1. Ask the buyer to raise the offer2. Negotiate the realtors commission3. Negotiate the closing costs with the buyer4. Ask the lender to accept less than 88.13%.5.

NOTE: a lender may accept less than the required 88.13% net proceeds, however, this

poses an increased loss to the lender as the VA will not pay a claim for more than themax guaranty.

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