What if you owe the VA and can’t pay them back? [classic article]

As first seen in GI Money magazine

Often when we think of owing money, we think of civilian banks and lending institutions. The commonly accepted problem is that the civilian institutions are not wired to understand and service military loans. But what happens when the loan is a VA loan and you are unable to repay it? There may be a feeling of additional shame or embarrassment in owing money to “one of your own”.

The servicer has the primary responsibility of servicing the loan to resolve the default. However, in cases where the servicer is unable to help the Veteran borrower, Loan Guaranty has Loan Technicians in eight Regional Loan Centers and a special servicing center who take an active role in interceding with the servicer to explore all options to avoid foreclosure. Service members or Veterans with VA-guaranteed home loans can call (877) 827-3702 to reach the nearest Loan Guaranty office where Loan Specialists are prepared to discuss potential ways to help save the loan.

Veterans who feel they may be facing homelessness as a result of losing their home can call

(877) 4AID VET (877-424-3838) or go to http://www.va.gov/HOMELESS/NationalCallCenter.asp to receive immediate assistance from the VA.

 

If VA is not able to help a Veteran borrower retain his/her home (whether a VA-guaranteed loan or not), the HOPE NOW Alliance may be of assistance. HOPE NOW is a joint alliance consisting of servicers,

counselors, and investors whose main goal is to assist distressed borrowers retain their homes and avoid

foreclosure. They have relief measures that VA does not have. The HOPE NOW Alliance can be reached at (888) 995-HOPE (888-995-4673) or by visiting http://hopenow.com.

The Veterans Administration itself suggests this: “Try to call the lender before it is necessary that the lender write to you, but never fail to answer notices or letters you may receive. In emergencies, the first impulse sometimes is to borrow money in order to keep the mortgage payments current.  However, any new loan must be paid off in a short time through burdensome installments, and the extra strain often leads to more serious financial trouble.” Don’t put yourself on a slippery slope of debt; instead, contact the lender and have a frank discussion of what’s happening in your financial situation.

The VA is well aware that there are civilians and civilian companies out there that are waiting to take advantage of veterans during this housing slump and high unemployment crisis. Additionally, many veterans may be elderly or have PTSD and other disorders, making them especially easy prey for unscrupulous people. The most important thing to remember is to take any offers of financial/loan/mortgage assistance to a VA counselor before you sign the dotted line.

The VA says, if a proposition to make up back payments is made to you, “Ask the holder of your mortgage or the Loan Guaranty Division of the nearest VA regional office about it before you sign any paper.    VA cannot give you legal advice or service, but it can advise as to dangerous practices or as to the advisability of consulting an attorney.”

There are three common types of mortgage scams that veterans have fallen victim to that the Department of Veterans Affairs wants you to be aware of. “In some parts of the country, veterans who are not familiar with real estate transactions have been “taken in” by shady deals usually called ‘milking’ or ‘equity skimming.’”

  1. “In one form of this racket, the veteran who is behind in VA loan payments, is approached by unknown persons who offer to pay the delinquent installments if the veteran will sign” (a lengthy, hard to decipher contract). “The veteran later learns that he or she has signed a deed and can get the property back only by signing another contract at a much higher price. When the veteran finds the stiff terms of the new contract cannot be met, legal action is started to take possession of the veteran’s home.” Since most veterans are not attorneys, they may be unaware of state laws regarding contracts that serve to protect them. For example, some states have requirements that contracts be of a certain size font, on a certain type of paper with specified spacing, etc., to assist in their legibility. Charlatans, of course, feel no need to adhere to even the least of contractual legal requirements.

 

  1. “In other cases, a housing development will be visited to learn whether veterans are having trouble meeting their VA loan payments.” This is a quick and efficient way for the charlatans to profit in their scams by volume, the warehouse store of scams, if you will. “If the veterans are having trouble, these individuals offer each veteran a small amount of cash for the equity in the property, plus the privilege of buying another home in a lower cost neighborhood on a land sales contract.  The veteran agrees to give possession in 60 days and ‘signs on the dotted line,’ not knowing that he or she is signing a deed to the property.  When the 60 days are up, the veteran is told that no houses are available in the lower cost development.  The veteran is then put out of the home.” It may also behoove caretakers, relatives of the disabled and elderly, as well as others who are guardians of veterans who are in assisted living or retirement homes to be on guard for charlatans. A conversation with the home’s official social worker and director may be in order to prevent unscrupulous visitors from taking advantage of vulnerable veterans.

 

  1. According to the VA, a third method is used in states where there is a long foreclosure or mortgage redemption period. A veteran, falling behind in home loan payments, is offered a small sum of cash for a “quit claim” deed to the property with a promise that all back payments will be made up.  The veteran moves out believing that the loan will be brought up to date.  Instead, the individual holding the quit claim deed rents the house without making up back payments.  Most of the money received as rent is profit until foreclosure is final, and the veteran, not knowing what has happened, may still owe the lender, and quite possibly, the U.S. Government if VA pays a claim on the loan. Again, it’s best to work directly with the VA and local authorities – such as official state foreclosure prevention programs – in going through the foreclosure process.

The VA also wants vets to know that improper foreclosures can lead to unforeseen problems: If your loan closed before January 1, 1990, and if, as a result of the foreclosure, VA has to pay a claim to the lender under the guaranty, the amount of such claim will be a debt you will owe to the Government.  If your loan closed on or after January 1, 1990, you will owe the Government in the event of a default if there was fraud, misrepresentation, or bad faith on your part.

Also, the VA says that if you decide to sell your home and the VA loan is not paid in full as part of the sale, you should protect yourself by obtaining a release of liability from VA prior to completing the sale.  You should also be aware that if your VA loan closed on or after March 1, 1988, it is unlawful to allow someone to take over your loan without the prior approval of VA or your lender.  Contact VA or your lender to find out how to apply for approval of your sale and/or a release of liability.

 

 

 

 

 

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