When you take out a loan, whether it be VA, FHA, or conventional, there is always a risk that hard times will come and something will prevent you from being able to afford your monthly mortgage payment. If this is as short term situation and will only affect your payment for a month, maybe two at the most, it is something that can usually be worked out with your lender as long as you are open and honest about it with him or her. However, a long term situation that will prevent you from making your monthly mortgage payment can be a frightening situation, indeed, and can end in foreclosure. Aside from the obvious consequence of losing your home, foreclosure also carries with it a lot of other penalties. The effect it has on your credit can be devastating the next time you try to take out a loan of any kind or even a decent credit card.
It is for the reasons above that the VA has always done its best to provide alternatives to veterans facing a potential foreclosure situation. Veterans particularly are at risk for having service-related disabilities or conditions that might cause a scenario where they are no longer able to work at their previous salary and find themselves not having enough money to make ends meet. Aside from that, the instability of the economy and the normal risk of job loss or layoffs provide a substantial threat, and the VA has several measures in place to help veterans safely navigate tough times. While no borrower wants to default on their loan and lose their home, it can at times be unavoidable. For a VA loan, a foreclosure automatically instigates a waiting period before the borrower is able to try to buy another home.
But the VA will do everything they can to help a delinquent borrower not default on their loan. The VA has some alternatives to foreclosure that can prove beneficial to the borrower. While some of them still involve losing the home, they are still preferable to foreclosure. The first thing the VA can do is offer financial incentives to the lenders that encourages them to explore any and all possible options to avoid foreclosures. These “financial incentives” can make avoiding foreclosure the best financial decision for the lender, when it otherwise wouldn’t be. Since a lender is coming from the opposite perspective of the borrower, what favors the borrower is often a disadvantage to the lender and vice versa. Financial incentives from the VA help to mitigate that effect.
The things that a lender can do to assist in a case where foreclosure is possible is to provide special forbearance, modify the loan to lower the monthly payment whether temporarily or permanently, and allowing the borrower to make up the missed payments in increments along with their normal monthly payment. The VA has been providing financial incentives to motivate lenders to make the above concessions for over 15 years. More recently, the VA has developed a new way of helping veterans out when they are in a position to make a short sale or a deed-in-lieu of foreclosure arrangement. This way is called relocation assistance, and is provided as a supplement to the veteran and his or her family if they’re going through foreclosure, a short sale, or deed-in-lieu arrangement.
Straight from va.gov, “Effective immediately, VA is authorizing servicers to advance $1,500 in relocation assistance to borrower occupants who complete a short sale with a VA compromise claim or who execute a Deed-In-Lieu”.
Relocation assistance needs to be listed as a reimbursable expense on the bank’s claim because there are laws that prohibit a buyer from getting cash from a short sale or deed-in-lieu arrangement. Relocation assistance can help a borrower avoid foreclosure and find another living arrangement much faster than he or she could without it. While having to give up a home or make a short sale isn’t an ideal situation by a long shot, it’s still preferable to a foreclosure. Consult with your lender if you find yourself in a situation where you might be looking at some of these options.