Posted on Wednesday, January 19, 2011
The Department of Veteran Affairs (VA) has instructed mortgage servicers to pay relocation assistance to borrowers completing short sales or deeds-in-lieu (DIL) of foreclosure on VA loans.
“VA has a longstanding policy of encouraging servicers to work with veteran borrowers to explore all reasonable options to help them retain their homes or, when that is not feasible, to mitigate losses by pursuing alternatives to foreclosure,” according to the circular released by the federal agency.
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 DIL.
The transfer of ownership via DIL or short sale is typically shorter than a foreclosure time period, the VA explained, and the property is left in better condition via DIL. These options can also provide a better outcome than a foreclosure sale for borrowers, investors, and communities.
The amount of the indebtedness reimbursable on a claim after crediting it with the net value of the property (or the short sale proceeds, if larger) is limited to the maximum guaranty on the loan plus the cost of liquidation appraisals. The servicer must waive any amount on the loan not covered by the sum of the VA guaranty claim amount and the greater of the net value or sale proceeds.
VA expects servicers to notify eligible borrowers of the availability of foreclosure alternatives and encourage completion of a short sale or DIL by providing the homeowner with a written agreement describing the requirements for receipt of a relocation incentive. With a DIL, the agreement must specify that the property will be unencumbered by other liens or restrictions on title, it will be kept in good and safe condition, and it will be left ready for sale in “broom clean” condition upon homeowner departure.
By: Heather Hill Cernoch, DS News