It's no coincidence that VA loans have the lowest foreclosure rate nationwide. The combination of free mortgage counseling and the backing of the Department of Veterans Affairs provides added financial protection for these loans.
Still, financial hardships can occur that leave foreclosure as the only available option. We’ll talk about the VA foreclosure process, ways to avoid it and what to do if you have to foreclose with a VA loan.
Losing a home to foreclosure is a distressing event. In order to navigate this challenging situation, it is crucial to understand how the VA loan foreclosure process unfolds. If borrowers are aware of the early signs of foreclosure, they are more likely to reach out for help.
Here are the key steps in the process:
The process begins when mortgage payments are missed. Once a payment or multiple payments have been missed, the lender must try to contact you both by phone and mail. Their aim is to come to an agreement to bring the loan amount up to date and to discuss potential loss mitigation options.
Typically, a VA loan is considered in default after 61 days of no mortgage payments. The lender may issue a notice of default at this point, which signals their intent to start the foreclosure process, marking the beginning of the preforeclosure stage.
The preforeclosure stage is an opportunity to resolve the delinquency and avoid formal foreclosure proceedings. Federal law mandates that most borrowers, including those with VA loans, are afforded 120 days to work out an alternative to foreclosure before foreclosure can move forward.
If the mortgage payments cannot be brought back on track, the lender will petition the court to start the foreclosure process. The court then appoints a trustee to oversee the auction of the property.
The trustee will auction the property, setting a minimum bid based on the property’s appraised value, the balance remaining on the mortgage and any unpaid taxes or liens. The highest bidder who meets or exceeds the minimum bid wins property ownership.
If the minimum bid is not met at the auction, the property becomes a real estate owner (REO) property, meaning its owned by the original lender. In such cases, law enforcement officials will issue an order to vacate if you're still in the property and lock the doors for the new owners.
Each step in this process provides the borrower with opportunities to work with their lender to devise a solution to avoid foreclosure, making early and proactive communication essential. If you ever struggle to make mortgage payments, contact your lender immediately to explore solutions.
VA foreclosures can have significant ramifications, so it’s critical to do everything possible to avoid it. Thankfully, the VA provides several tools and options to keep your home.
Here are some tips that can help forestall foreclosure:
The first step when you're having trouble making your mortgage payments is to contact your loan servicer or lender. They can provide details about available options and work with you to find a solution. Ignoring the situation or delaying this conversation can result in fewer available options.
Your monthly mortgage payment is due on the 1st of each month. Although you have a grace period until the 15th of each month without late fees, making your payments earlier can help prevent falling behind and potentially facing foreclosure.
The VA provides free financial counseling to Veterans and surviving spouses. This service is available even if your loan isn't VA-backed. VA loan technicians can offer you financial counseling, help you negotiate with your servicer and guide you toward the best solution for your situation.
If your VA-backed loan is 61 days past due, the VA will automatically assign a technician to your loan. However, you can proactively request one at any time.
The Servicemembers Civil Relief Act (SCRA) is a U.S. federal law designed to offer various legal and financial protections to active-duty service members in the military or other uniformed services.
The SCRA offers a few benefits for service members:
There are several plans that help you avoid foreclosure. Below are six widely-utilized options: