Loss-Mitigation for Veterans and Servicemembers:
What is Loss-Mitigation?
Loss-mitigation refers to the methods that are used by lenders to avoid having to foreclose on your home. The VA encourages its lenders to use several different loss-mitigation techniques by paying a lender for each method tried. The main loss-mitigation techniques that are encouraged by the VA are Repayment Plans, Specials Forbearance, Loan Modifications, Compromise Sales, and Deed-in-lieu of Foreclosure. The main goal of all of these techniques is to keep you in your home for as long as possible.
Does the VA decide who gets loss-mitigation?
No. While the VA works closely with lenders to encourage the use of its recommended loss-mitigation techniques where it is reasonable, the ultimate decision on whether to grant the programs rests with the lender and will depend upon your specific circumstances.
Does my loan servicer have to grant the VA's recommended loss-mitigation techniques?
Your loan servicer is not obligated to grant you any of the loss-mitigations techniques that listed above if you do not qualify for them. But, if your loan servicer fails to consider whether you qualify for any of the programs mentioned above, you can report that servicer to the VA and it might lose its VA guarantee. You might also be able to prevent that loan servicer from getting a court ordered foreclosure until it has determined whether you qualify for loss-mitigation. Generally, however, this is not a problem as veteran's loans servicers make every effort to determine whether they qualify for any of the loss-mitigation techniques listed because the VA pays an incentive to lenders for doing so, and an even greater incentive for successfully avoiding foreclosure.
What are the obligations of my loan servicer regarding loss-mitigation under the law?
Your loan servicer is obligated to consider granting you all of the mitigation techniques mentioned in accordance with the guidelines set out by the VA. Your servicer must make a reasonable effort to avoid allowing your loan to default, and they are encouraged to do this through the VA's recommended loss-mitigation techniques. This does not mean that they must allow you to do any or all of the listed techniques. If you believe that your loan servicer has failed to consider a Special Forbearance, for example, or that you qualify for one of the techniques even though your servicer has already denied you, you should contact your local VA loan servicing representative to discuss the matter at 1-877-827-3702.
What if my loan servicer has already brought a foreclosure action against me?
If your loan servicer has already brought a foreclosure action against you, and has failed to consider any one of the VA's loss-mitigation techniques, you should claim as a defense, that the loan servicer has failed to operate under good faith and fair dealing and that it has "unclean hands" because it has not made a reasonable effort to abide by the VA guidelines. For in depth coverage of this issue, see the Advocates and Legal Professionals section.
What is a repayment plan?
A repayment plan is simply an agreement between you and your lender that lays out how you are going to pay that lender back for missed mortgage payments. This payment is separate from your normal mortgage payments. For example, if you missed you last three $1000 mortgage payments, you and your lender might come to an agreement that you will begin paying your normal mortgage payments again (or those payments might be altered through one of the other loss-mitigation methods described below), and you will make payments of $200 for the next five months in order to pay back the $3000 ($1000 x 3 months) that you owe. Note: Most lenders will charge you interest and a fee for missing payments that you will also have to pay back through your repayment plan.
How do I set up a repayment plan with my lender?
Almost all lenders will be eager to set up a repayment plan with you so that they can get their money back. Therefore, you should call your lender and tell them that you missed a few payments and you would like to set up a repayment plan with them. If you would like help, call your local VA Loan Service Representative at 1-877-827-3702.
What is special forbearance?
VA loans may allow for "special forbearance" on your loan payments if you are experiencing financial difficulties. This means that if you qualify, the bank may temporarily suspend payments on your mortgage, without foreclosing, to give you time to accumulate more money or to sell the property. In effect, forbearance is a timeout before the foreclosure process begins.
Most VA lenders will always consider giving you forbearance before foreclosing on your house because the VA strongly encourages the practice and provides cash incentives for lenders who do so. Forbearance is not a get out of jail free card, rather you must show the lender that you have money coming in with which you will be able to pay it. An example of when a lender is likely to grant forbearance is when you are waiting on a large tax return, drawing money from your retirement accounts that will take a few months to come in, or the lender is doing a loan modification.
Veterans in need of loan forbearance should contact a trained VA Representative at their regional VA Loan Servicing Center be calling 1-877-827-3702 to discuss how they can save their loan. To find out more about your legal rights to a special forbearance, or if you are a legal professional or veterans advocate see VA Lender Forbearance Obligations.
What is a loan modification?
Loan modification refers to when a lender changes the terms of your loan in order to help you avoid foreclosure. An example of this is when the lender changes the term of your loan from 20 years to 30 years in order to lower the monthly payments that you will have to make. Typically, you must be fully current on all your property taxes before this option will be considered, and the lender will add any fees and costs associated with the modification to your loan amount. An alternative to the standard loan modification is when the VA buys your loan from your lender under 38 U.S.C. 36.4318 (also called a "refunding"). When this happens you will make payments directly to the VA, and you will not be able to transfer your loan without the approval of the Secretary of the VA. The VA will also apply your delinquency into the total amount of your new loan.
Can my late payments be built into my loan modification?
Yes. It is often the case that your lender will simply move the amount you owe in back payments into the total amount owed under the new loan modification terms. Thus, your repayment period might be extended by the amount you owe in back payments.
What is a compromise sale?
A compromise sale (short sale) is when you sell your house for less than the value owed on your mortgage, and the lender agrees to accept whatever amount you get for the house as payment-in-full of your mortgage.
Why would a lender take less money than I owe then through a compromise sale?
In short, it costs a great deal of money for a lender to initiate the foreclosure process, and it is often the case that allowing you to sell your home for less than the value you owe on the loan is a more economical way for the lender to recoup some of its money. The lender is also able to generate some money from the VA for avoiding foreclosing on your home.
How does a compromise sale work?
Let's say that you owe $200,000 on you home, yet because of market conditions, your house is now only valued at $180,000. If you have already missed several payments on your mortgage, your lender may decide that having you sell your home for $180,000 would be better than trying to foreclose on your house. Therefore, you would be allowed to sell your home for $180,000, the lender would then take that money and accept it as payment in full of your loan. While the lender takes a $20,000 loss on the loan, it may have cost more for it to go through the foreclosure process and then have to resell the house on its own.
How do I get my lender to do a compromise sale?
Ultimately, it is up to your lender whether they will allow a compromise sale, but the VA will help you by working with you and the lender to make the deal happen. You should call a VA loan service representative at 1-877-827-3702 to discuss your options.
Deed-in-lieu of Foreclosure:
What is deed-in-lieu of foreclosure?
Deed-in-lieu of foreclosure is the process by which you sign your deed over to your in lender in exchange for the lender righting off your debt. This results in you losing your home while being bale to protect your credit score.
Why would a lender do a deed-in-lieu of foreclosure?
A deed-in-lieu of foreclosure is a cheaper way for the lender to accomplish the same goal as a foreclosure-taking possession of your home. The foreclosure process can belong and expensive as the lender is forced to convince a court that it should take your home a give it to the lender so that the lender can then sell your home to recoup some or all of its loan money. By getting you to sign your home over to it without having to go through the foreclosure process in a deed-in-lieu of foreclosure, the lender is able to avoid all of these costs. In addition, the lender is paid money by the VA for doing this instead of a foreclosure.
How do I get my lender to do a deed-in-lieu of foreclosure?
You should contact your local VA loan service representative to help you negotiate with your lender about a deed-in-lieu of foreclosure at 1-877-827-3702.
Help After Losing Your Home:
If you have lost your home through foreclosure or one of the loss-mitigation techniques listed above, see the following guides to help you get back on your feet.
- Are You Leaving Money on the Table?
- A Homeless Veteran's Resource Guide
- A Veteran's Guide to Education Benefits
Fore more information about home loans, see A Veteran's Guide to Home Loans.