What do veterans with VA home loans need to know about natural disasters and how they may affect the ability to maintain the mortgage loan without risk of foreclosure? There are many parts of America that struggle with wildfires, hurricanes, mudslides, tornadoes, and other natural disasters. The Department of Veterans Affairs has policies to help protect VA borrowers and their homes.
VA Mortgage Loan Policy on Foreclosures in General
VA loan policy addresses foreclosure issues with one main aspect emphasized over and over again which is avoidance. The VA official site urges all VA borrowers to contact their lenders at the first sign of financial trouble to get the most options available to avoid loan default and foreclosure.
According to the VA official site, “When a VA-guaranteed home loan becomes delinquent, VA provides supplemental servicing assistance to help cure the default.” The participating VA lender has “the primary responsibility of servicing the loan to resolve the default” according to the VA.
But in circumstances where the lender is “unable to help the borrower” the Department of Veterans Affairs has loan technicians working in the VA’s eight Regional Loan Centers. They “take an active role in interceding with the servicer to explore all options to avoid foreclosure.”
VA Mortgage Loan Policy on Natural Disasters
VA borrowers affected by natural disasters should know that there is help available in the recovery process. It is not just from the Department of Veterans Affairs or the lender. There are additional resources to prevent foreclosure, help recover the home from damage, or find a replacement home may be available from FEMA, the Small Business Administration, local charitable groups, and military relief societies.
VA policy includes encouragement to seek out these sources of help in addition to whatever is needed from the lender. But it also encourages VA lenders to take specific steps to help those affected by natural disasters.
VA Borrowers in Distress
The VA official site states, “VA encourages servicers of guaranteed loans in disaster areas to extend all possible forbearance to borrowers in distress.” Supplemental loans and/or loan modification options should be explored where appropriate. “It is the loan holder’s responsibility to counsel borrowers concerning assistance that may be available.”
Note that those statements are aimed at lenders who have “borrowers in distress” and the cause of that distress may or may not be a natural disaster. If you are afraid that your VA home loan is threatened by foreclosure action for any reason (not just a disaster), call your lender and ask to receive the counseling you are entitled to about your options to avoid losing your home.
Department of Veterans Affairs policy for homeowners affected by natural disasters includes encouraging lenders to impose a moratorium on foreclosure action in such cases. The official site reminds us that the lender is “ultimately responsible for determining when to initiate foreclosure and complete termination action.” But the VA recommends a 90-day hold on new VA loan foreclosures in the disaster area.
The VA Does Not Control Participating Lenders
As you can tell by the language in the quotes above from the VA official site, the Department of Veterans Affairs does NOT control participating VA lenders. They do not provide direction to them in making choices about which loans must be foreclosed upon and which ones qualify for assistance.
Your VA lender may or may not choose certain actions in the wake of a disaster. But those who do not communicate with the lender in a timely manner after the damage has been done risk missing out on some forms of help available to those who are proactive.
In the same way that the VA does not set or regulate VA loan details such as interest rates or FICO score requirements, it’s the lender’s job to also provide the borrower with the options needed when disaster strikes.
But the borrower must make the effort to contact the lender as soon as possible.
Mortgage Payments Are Still Due After A Natural Disaster Unless You Have Made Other Arrangements with Your VA Lender
VA mortgage loan payments should not be suspended even if your home is completely uninhabitable after a natural disaster. VA loan policy does not include any kind of automatic mortgage payment suspension option after a disaster. Lender standards will play a very important part in what happens next.
The key to understanding how to proceed here is that it may be possible to arrange for suspended payments or make other arrangements with the lender. But the borrower is definitely the one responsible for making contact with the financial institution and making those arrangements.
Don’t let too much time pass before communicating with the lender. Your options for loan modification or other foreclosure avoidance measures are better the sooner you make arrangements. If you miss too many payments, your options may be restricted.
Some borrowers might be tempted to delay their mortgage payment until they have made an insurance settlement. There are two reasons to discuss this approach with your lender.
One, your lender can help you make smart choices about how to proceed with your mortgage and there may be a better option available to you.
Two, borrowers have no guarantee as to the speed of an insurance settlement process. If there are any disputes over your claim or how the insurance company handles your claim, the delay in your settlement money could be longer than you need to avoid running into trouble with your mortgage.
Some Natural Disaster Assistance May Be Dependent on A Federal Disaster Area Declaration
Some home loan options or disaster relief programs are only open to borrowers who live in an area that has been identified as a Federal Major Disaster Area. As soon as you know if your area is named as such, go to the FEMA official site as well as contacting your lender to see what assistance is open to you in such cases.
Special Phone Numbers for VA Borrowers Affected by A Natural Disaster
You can call the Department of Veterans Affairs directly to speak with a loan specialist about post-disaster options by calling 877‐827‐3702.
Disabled veterans who have used the VA Specially Adapted Housing Grant to modify a home later damaged in a natural disaster should call 877‐827‐3702 to check the availability of supplemental grants to assist with repairs to that home.
Reasons to Avoid Foreclosure
Falling behind on a VA home loan for any reason, disaster or not, can lead to foreclosure of the property. This is the case if a VA borrower doesn’t take immediate steps to prevent the loan from becoming delinquent and vulnerable to foreclosure.
Your VA lender can discuss your foreclosure avoidance options with you including loan modification, forgiveness or adjustment of a certain amount of missed payments where applicable, refinancing to catch up and get current on the mortgage, etc. Some may be tempted to let a damaged home slip into foreclosure, but there is an important reason not to do so.
In certain cases where a VA loan closed before Jan. 1, 1990, borrowers can be held liable for the dollar amount of a claim made by the lender to the government because of the foreclosure action.
According to the VA official site, in such cases where VA has to pay a claim to the VA mortgage loan servicer, “the amount of such claim will be a debt you will owe to the Government. If your loan closed on or after Jan. 1, 1990, you will owe the Government in the event of a default if there was fraud, misrepresentation, or bad faith on your part.”
VA Loan Foreclosure Avoidance Options
The following options may be available from your participating lender to help you avoid VA loan default and foreclosure regardless of whether a natural disaster is to blame for the financial difficulty that lead to missing mortgage payments:
- VA Loan Repayment Plans let the borrower pay a regular installment each month plus part of any missed installment payments.
- Special Forbearance where the participating VA lender agrees not to initiate foreclosure to allow time for borrowers to make up the missed mortgage payments.
- VA Home Loan Modification permits the lender to transfer the delinquent payments to the existing loan’s balance and start a new schedule of mortgage payments.
These are the options that permit the borrower to keep the home. In more drastic cases, avoiding foreclosure may be possible only by selling or transferring the property in one of the following ways according to the VA official site:
- Arranging a private sale of the home
- Short sale of the home for an amount below the payoff required
- Deed-in-Lieu of Foreclosure where the VA borrower deeds the property to the servicer rather than a foreclosure.
Important Takeaways for VA Borrowers Affected by Natural Disasters
- VA mortgage loan payments are still due after a disaster unless you have made other arrangements with your lender.
- The VA cannot modify your loan in any way. This is a process the borrower and lender must work together to accomplish.
- There is a difference between an area that has been hit with a natural disaster and such an area that is identified as a Federal Major Disaster Area. If you live in an area with such a designation, additional help may be available from FEMA, HUD, the Small Business Administration, and other agencies.
- Foreclosure avoidance requires you to work with the lender as early as possible when you know you can’t make payments.
- The VA advises lenders to issue a foreclosure moratorium for homes in a disaster area, but it cannot force them to do so.
- There are several options you can try with a participating VA lender to avoid foreclosure. Those options may include loan modification, a supplemental loan to bring you back into good standing on your mortgage. These options may vary depending on the lender, the borrower’s circumstances, and other factors.
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