Foreclosure isn’t all some may think it is. Consider one of the most common VA loan myths: foreclosure means walk away from your house and your payment responsibility. Wrong! Foreclosure can be different for everybody depending on where you live. But, VA loan foreclosure almost always results in the borrower paying back losses. Remember, the VA guaranteed a portion of your loan. If the loan forecloses and the VA has to reimburse the lender, you’ll be on the hook to the VA for that amount.
On the bright side, foreclosure doesn’t have to mean losing your home loan benefits forever. If you pay the VA back, your entitlement can be restored. Of course you’ll have to put in the time to repair credit in order to qualify again, too.
If you’re facing VA loan foreclosure, call the VA Regional Loan Center associated with your mortgage. Counselors can talk you through some foreclosure alternatives that may help save your house. Loan modification, forbearance and repayment plans have helped many veterans avoid foreclosure.
Still, the lender may ultimately proceed with foreclosure. In this case, a default notice would be sent to the county, and you’d be notified of the pending foreclosure. Here, the redemption period would start. What you do during next would determine whether you keep your house or not:
1. Quickly Raise Cash To Pay Off Your VA Loan. You’re thinking, “If I could raise that kind of money, I wouldn’t be in this mess!” But, you’d be surprised what veterans can do when faced with the thought of losing their homes. Nothing would make your lender happier than if you were to suddenly have enough money to pay off your loan. It happens. And, it doesn’t necessarily involve squeezing blood from a turnip. Assets can be liquidated. You may even find a way to refinance to satisfy the mortgage and keep your house.
2. Sell The House Fast. You may be able to sell the house for enough to pay off the loan. Maybe you’re able to sell the house for more than you owe and make a little extra to rent or buy another house. What if you can’t sell the home for what you owe on your loan? In this case you’d need to ask your lender what amount they would accept if you were to “short sale” the home.
3. The Lender Auctions Off Your House. The lender may hold a public auction. In most states, the deed is awarded to the highest bidder if the minimum bid is met. It’s possible a new owner is looking for income property, either in the form of reselling at a higher price or using the home as a rental. Either may allow you to stay in the home if the price is right.
4. Surrender Your House To The Lender. If the lender cannot get enough at auction, or you are unable to satisfy the mortgage during the redemption period, you may have to surrender your house. Go with dignity, or the Sherriff will kick you out.
5. File For Bankruptcy. If you feel foreclosure is unavoidable, filing for bankruptcy may protect you from some debts. Foreclosure costs money and the lender and the VA lose if your loan isn’t satisfied. Borrowers should be clear, that even bankruptcy can’t protect you from all debt you take on with foreclosure. So be sure you understand what you’re getting into before choosing this route.
Bankruptcy and VA loan foreclosure should be last resorts. Borrowers beware! The two can hurt your credit for future loans. For more information about VA loans, speak to a direct VA loans officer.