Legal update: The VA is urging servicers to implement a foreclosure moratorium through December 31, 2024. During this time, the VA expects servicers to hold off on initiating, continuing, or completing foreclosures on VA-guaranteed loans, except in the following situations:
Private lenders, like banks and mortgage companies, make VA-guaranteed home loans. The U.S. Department of Veterans Affairs (VA) guarantees a portion of the loan so the lender can offer more favorable terms to the borrower and provide loans to people who otherwise might not qualify for a mortgage. VA-backed loans are less risky to the lender because VA will cover losses if the borrower defaults. (The VA also offers a limited direct loan program. With a VA direct home loan, the VA is the mortgage lender.)
If you have a VA loan and are delinquent in mortgage payments, VA foreclosure guidelines say the servicer should work with you to help you avoid foreclosure. But if you can't find a solution to the delinquency, the foreclosure will go forward with state law governing the process—no different than any other foreclosure.
The VA requires servicers to work with borrowers who are behind in payments to bring the loan current or avoid foreclosure whenever possible. Borrowers with VA loans can access special options unavailable to borrowers with other kinds of loans.
But if you can't work something out, the foreclosure will begin.
Once a borrower fails to make a payment or multiple payments, the servicer has to attempt to contact the borrower by phone and mail and, in some cases, arrange a face-to-face meeting. (38 C.F.R. § 36.4350 (g), (h)).
The servicer's goal is to try to reach an agreement with the borrower to bring the loan current and discuss loss mitigation options (see below). (38 C.F.R. § 36.4350 (g), (h)). (Federal mortgage servicing laws also require the servicer to contact the borrower to attempt to resolve the delinquency.)
Under VA guidelines, in most cases, the servicer must send the borrower a letter within 30 days of the delinquency if the servicer can't make phone contact with the borrower. The letter should:
The servicer must send another letter about loss mitigation options within 45 or 75 days of the default, depending on the situation. (38 C.F.R. § 36.4350 (g)).
Also, depending on the circumstances, you might be entitled to protection against foreclosure under the federal Servicemembers Civil Relief Act or state law.
Under federal law, most homeowners, including those with VA loans, get 120 days to work out an alternative to foreclosure before the foreclosure can begin. But the foreclosure will start if you can't work out a loss mitigation option.
Once started, a VA loan foreclosure is the same as other foreclosures. State law governs the procedures. So, you'll get whatever foreclosure notices your loan contract and state law requires.
However, the VA encourages servicers to continue loss mitigation efforts even after the foreclosure starts.
If you have a VA loan, there are several ways to avoid a foreclosure. A VA loan technician or housing counselor can help you determine the best option.
You can get financial counseling before and during the foreclosure process.
Under VA guidelines, the borrower generally gets the right to reinstate the loan and stop a foreclosure sale by paying all overdue payments, late charges, and foreclosure expenses. A few exceptions exist, though, like when state law precludes reinstatement. (38 C.F.R. § 36.4309 (h)).
The VA expects the servicer to exhaust all possible alternatives before pursuing foreclosure. The main loss mitigation options for borrowers with VA loans are:
A VA loan foreclosure, like other foreclosures, could result in serious consequences, including:
Learn more about mortgage assistance for veterans and ways to avoid foreclosure if you have a VA loan.
Get tips on what to do—and what not to do—if you're facing a foreclosure.
Find out if foreclosures are on the rise.
Again, if you're a veteran with a VA-guaranteed or direct loan, the VA can get involved in your case, especially if you contact the nearest VA Regional Loan Center and ask for assistance. In some cases, the VA can provide a technician who can intervene with the servicer on your behalf, help you explore all options to avoid foreclosure, and conduct financial counseling with you. Contact a VA loan technician at 877-827-3702, Monday through Friday, from 8:00 am to 6:00 pm EST.
If the servicer fails to meet VA requirements or its obligations under state or federal law, you might have a defense to a foreclosure. If you have additional questions about how foreclosure works or want information about how to fight a foreclosure in court, consider talking to a foreclosure attorney.
Also, a HUD-approved housing counselor is another helpful resource for information, particularly regarding different loss mitigation options.