Methods For Avoiding Foreclosure
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.
You may be able to refinance your loan under the Interest Rate Reduction Refinancing Loan (IRRRL) Program. This type of refinancing allows the veteran to reduce his or her monthly loan installment payments if interest rates have dropped since the time the original loan was made. Even defaulted loans may be refinanced with prior approval of VA. However, VA does not have the authority to require a lender to refinance a veteran’s loan.
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 so long as you can show that you will be able to resume payments on a specific date in the near future.
If your loan is re-amortized, the delinquency is added to the loan balance in order to bring your payments up to date. This increases your loan amount and will also 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 re-amortize your loan by VA regulation; however, we cannot require the holder to do so.
If you do not believe you will be able to reinstate your loan and maintain the mortgage in a timely manner, a private sale of the property will enable you to meet your obligations and receive any equity you may have built up. If you have equity in the property, most private sales are for more than the amount owing on the loan. You may sell the property to a buyer who gets his or her own financing and pays off your GI loan or a buyer who will assume your responsibility for the loan. If the buyer is assuming your loan, you should contact VA and obtain a release of liability before the sale is closed. Warning: IF YOU SELL YOUR HOME WITHOUT PAYING OFF THE MORTGAGE, YOU MAY REMAIN LIABLE FOR THE DEBT. CONTACT VA BEFORE SELLING FOR INFORMATION ON HOW TO GET A RELEASE FROM LIABILITY AND SUBSTITUTION OF ELIGIBILITY.
If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan, but you can sell it for its fair market value, VA may pay a “compromise claim” for the difference in order to help you complete the sale. You may contact your lender or VA to discuss the situation and get prior approval for sale with a compromise claim payment.
If you will be unable to cure the default and a private sale does not appear realistic, VA will consider accepting a deed in lieu of foreclosure. If there are no liens on the property, and VA agrees to accept a deed, you will have to sign legal papers making VA the owner of the property. 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 may be released from all further liability, or you may be asked to agree to repay the Government for all or part of the claim we paid. VA representatives can discuss this with you in detail.
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 holder has decided it cannot extend further forbearance or a repayment plan, you may qualify for refunding. If refunding is appropriate, VA will notify you.