Methods for Avoiding Foreclosure

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METHODS FOR AVOIDING FORECLOSURE  

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PAY THE DELINQUENCY. Under most circumstances, GI loan holders are required to accept payment of the full delinquency and reinstate the loan. The delinquency may include certain legal costs if you are already in foreclosure. Many holders require certified funds for reinstatement. Please call your mortgage company for instructions on how to submit funds.

FORBEARANCE/REPAYMENT SCHEDULE. The most common way of resolving a loan default is to work out a plan which will let you repay part of the delinquency each month, along with your regular monthly installment. If you are temporarily unable to meet your monthly mortgage obligation, your holder may extend forbearance by agreeing to suspend payments or accept partial payments for a limited period of time until you will be able to begin a repayment schedule. VA cannot require the holder to extend forbearance or to agree to a specific repayment schedule; however, holders will usually cooperate if you can show the ability to resume payments on a specific date in the near future. Before you call your mortgage company, have your financials prepared with all your income and expenses.

PAYMENT ASSISTANCE. Many State and local governments, as well as private charitable organizations, have programs which will pay all or part of your mortgage obligation for a fixed period of time. Contact your mortgage company for information on these programs. VA does not have a program which would give you direct payment assistance.

MODIFICATION.  If your loan is modified, the delinquency is added to the loan balance in order to bring your payments up to date. This increases your loan amount and may increase your monthly payments. The amount of the payment increase will not be as great if the life of your loan is extended at the same time. Your loan holder is allowed to extend and/or modify your loan by VA regulations; however, we cannot require the holder to do so.

PRIVATE SALE. If you do not believe you will be able to reinstate your loan and cure the default, a private sale of the property will enable you to meet your obligations and realize any equity you may have accumulated. Most private sales would enable you to pay your loan in full. You may sell the property to a buyer who obtains his or her own financing and pays off your GI loan or to a buyer who will assume your responsibility for the loan. If the buyer is assuming your loan, you must contact VA if your loan closed after 12/31/89, and obtain a release of liability before the sale is closed.

If your property cannot be sold for an amount which is equal to or greater than the amount owed, VA may pay a "compromise claim" for the difference in order to help you go through with the sale. Compromise sales are approved if the sales contract meets several criteria and results in a savings to the agency, over the costs of foreclosure. An additional advantage is that the property is not acquired by the VA and the owner avoids a foreclosure and resultant damage to their credit rating. If a compromise contract is accepted, you will be released from all further liability. Please contact your mortgage company to discuss this alternative to foreclosure.

In order to be considered for our compromise sale program you must submit a signed contract equal to fair market value. You will need to contact your mortgage company to speak to a representative in loss mitigation concerning the process and requirements to complete the compromise sale. All closing costs should be reasonable and customary. You should submit this contract along with the appropriate forms to your mortgage company. .

DEED IN LIEU OF FORECLOSURE. If you are unable to cure the default, and a private sale does not appear realistic, your mortgage company may consider accepting a deed in lieu of foreclosure. If there are no liens on the property, and the mortgage company agrees to accept a deed, you will have to sign legal papers transferring ownership to the VA. Normally, VA will have to pay your loan holder a claim for the difference between the value of the property and the amount you owe on the loan. If a deed is accepted, you will be released from all further liability. Please note that your lender will usually report "voluntary foreclosure" on your credit report versus "foreclosure." We cannot guarantee how future creditors will view this information. Your loss mitigation representative can discuss this with you in detail.

 REFUNDING. VA has the discretionary authority to buy a loan from the holder and take over the servicing. This is called "refunding". We consider this alternative for every loan before foreclosure is completed. If you have the ability to make mortgage payments, or will have the ability in the near future, but your loan holder has decided it cannot extend further forbearance, a repayment plan, or a modification, you may qualify for refunding. If your loan is in default and you are not able to repay the loan according to the lender’s terms, you should contact your VA representative.

Contact:

Loan Administration

Roanoke Regional Loan Center
Dept of Veterans Affairs Regional Office
210 Franklin Road, SW
Roanoke, VA 24011

DON DENNEHY
Loan Guaranty Officer

DIANE FOLTZ
Loan Administration Officer

Regional Loan Center Phone Number: 1-800-933-5499

Loan Administration Fax Number: 1-888-891-6910