A foreclosure can occur when a borrower defaults or cannot repay a mortgage loan amount. In that case, the lender takes possession of the property to recover a portion of the loss. In these shifting times when personal, medical, and economic issues have upended many lives, it’s not unusual to find borrowers, including those with VA loans, facing financial hardships and struggling to make their mortgage payments. For most people, losing their homes to foreclosure is one of their most dreaded fears. Our Q & A on the subject offers up some clarity on this difficult topic.
Contact your lender or servicer immediately. Of course, no one wants to make that phone call, but the worst mistake you can make is ignoring the situation. But when you first notice that your payments are getting hard to handle, reach out to the VA and request that they assign a VA loan technician to your loan. The VA provides free financial counseling to Veterans and surviving spouses. This service is available even if your loan isn’t a VA-backed loan. These counselors provide invaluable assistance to Veterans and active-duty members who are financially stressed. In addition, they work directly with your loan servicer to negotiate repayment plans, forbearance, and loan modifications – all of which can offer alternatives to losing your home.
Once you fail to make a payment or multiple payments, your lender must attempt to contact you by phone and mail. Their goal is to try to reach an agreement with you to bring the loan current, as well as to discuss loss mitigation options. Federal mortgage servicing laws require the servicer to reach out to the borrower to resolve the delinquency. After all, helping you out is in the best interest of all parties because foreclosure is a losing proposition for both the borrower and lender.
No, once the foreclosure on a VA loan has begun, the process is the same as other types of loans because state law governs foreclosures. However, the VA encourages lenders to continue loss mitigation efforts even after the foreclosure starts to allow the borrower every opportunity possible to avoid foreclosure.
Loss mitigation options exist to help veterans avoid foreclosure on delinquent loans. The VA encourages lenders to do everything possible to avoid foreclosure. According to the U.S. Department of Veterans Affairs, the six loss mitigation options for VA-backed loans are as follows:
Federal law requires a preforeclosure period stating that most borrowers, including those with VA loans, get 120 days to work out an alternative before the foreclosure can move forward. However, if you can’t work out any of the mitigation options above or any other, the foreclosure will proceed.
The foreclosure timeline depends on the state laws that apply where the process takes place. It can take months or more than a year. However, the result is the loss of a home and a big ding to your credit score. Avoiding a foreclosure at all costs is what you want to strive for, but if you find yourself in such an unfortunate position, you can expect this basic timeline of the process:
Yes, there is some good news. Under VA guidelines, you can typically reinstate the loan and stop a foreclosure sale by bringing the delinquent loan current by paying all overdue payments, late charges, and foreclosure expenses. However, as with most things, exceptions exist. For example, some states don’t give borrowers the right to reinstate. So, check with your VA lender to see if it’s possible to reinstate your loan and stop a foreclosure.
Yes, you can become eligible for a VA loan two years after foreclosure in most cases. Diligent VA borrowers who have a foreclosure in the past can repair their credit and get another VA home loan. Most lenders review applications of potential borrowers with foreclosures in their history on a case-by-case basis. Naturally, the loan officer will ask you to explain the circumstances that led to the foreclosure. But as long as you’ve repaid the loss to the VA and kept your credit in good standing, you should be able to qualify for another VA home loan. You must repay the loss to the VA to restore the entitlement needed to get another government-backed loan.
As you can see, the foreclosure experience is grueling, and it takes an emotional toll on anyone experiencing it. For that reason, you must seek help and advice from your lender or servicer as soon as you recognize that you’re having difficulty covering the monthly mortgage. And don’t forget that the VA offers free financial help to those who are eligible. So, take advantage of the resources available to get you back on solid financial footing.
Contact one of our experienced VA loan professionals at Aligned Mortgage for more information about VA loans and foreclosure.