Is a VA Loan Foreclosure Different Than Other Foreclosures?

If you have a home loan that the U.S. Department of Veterans Affairs (VA) guarantees and you're delinquent in mortgage payments, the servicer is supposed to work with you to help you avoid a foreclosure.

But if you can't work out a solution to the delinquency, the foreclosure will go forward with state law governing the process—no different than any other foreclosure.

How VA-Guaranteed Home Loans Work

Private lenders, like banks and mortgage companies, make VA-guaranteed home loans. The VA guarantees a portion of the loan so that the lender can offer more favorable terms to the borrower, as well as provide loans to people who otherwise might not qualify for a mortgage.

VA-guaranteed loans are less risky to the lender because VA will cover losses if the borrower defaults.

Foreclosure of VA-Guaranteed Loans

The VA requires servicers to work with borrowers who're behind in payments to bring the loan current or otherwise avoid foreclosure whenever possible. But if you can't work something out, the foreclosure will begin.

Preforeclosure Requirements for VA-Guaranteed Loans

Once a borrower fails to make a payment or multiple payments, the servicer has to attempt to contact the borrower by phone and mail. The servicer's goal is to try to reach an agreement with the borrower to bring the loan current, as well as to discuss loss mitigation options (see below). (38 C.F.R. § 36.4350 (g), (h)). (Federal mortgage servicing laws also require the servicer to reach out to the borrower to attempt to resolve the delinquency.)

Under VA guidelines, in most cases, the servicer has to send the borrower a letter no later than the 30th day of the delinquency. The letter should:

• State that the loan is in default.
• Emphasize that the delinquency is serious and stress the importance of taking prompt action to resolve the default.
• State the total amount due.
• Tell the borrower how to contact the servicer to make arrangements to cure the default. (38 C.F.R. § 36.4350 (g)).

Loss Mitigation Options for VA-Guaranteed Loans

The VA expects the servicer to exhaust all possible alternatives before pursuing foreclosure. The main loss mitigation options for borrowers with VA-guaranteed loans are:

• repayment plans
• special forbearance
• modifications
• assumptions (you sell or transfer the property to someone else, and that person takes over the mortgage payments)
• refunding (the VA buys the loan and takes on servicing responsibilities)
• compromise sales (short sales), and
• deeds in lieu of foreclosure.

To learn more about options for veterans who're facing foreclosure, see Help for Veterans Struggling With Mortgage Payments.

Federal Law Usually Requires a Preforeclosure Period

Under federal law, most homeowners, including those with VA loans, get 120 days to try to work out an alternative to foreclosure before the foreclosure can begin. But if you're not able to work out one of the options above or another loss mitigation option, the foreclosure will start.

Foreclosure Process

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.

The VA encourages servicers to continue loss mitigation efforts even after the foreclosure starts. Also, keep in mind that, depending on the circumstances, you might be entitled to protection against foreclosure under the Servicemembers Civil Relief Act.

Right to Reinstate the Loan

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)).

Getting Help

If you're a veteran with a VA-guaranteed loan, the VA might become involved in your case, especially if you contact the nearest VA Regional Loan Center and ask for assistance. The VA may provide a technician who can intervene with the servicer on your behalf and help you explore all options to avoid foreclosure, as well as conduct financial counseling with you.

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 useful resource for information, particularly when it comes to different loss mitigation options.