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Will the VA Home Loan Allow a Short Sale?

Published on: Thursday, Mar 08, 2012

If you are eligible and choose to short sale your home, the United States Department of Defense will pay off your mortgage.How is this possible? �The program is called Expanded HAP.

What is expanded HAP?

To understand expanded HAP, you must first understand what HAP itself is. HAP is an acronym for Homeowners Assistance Program. HAP is a type of government assistance that is provided to service members and federal civilian employees. The program was established by law and is enforced by the US Army Corps of Engineers (USACE). It works by offering assistance to homeowners who fit the program's eligibility criteria and are suffering financially with the process of selling their VA and non-Veterans Administration Home Loans homes as well as struggling to pay back the full amount of their home loan mortgage balance. The core focus of the program is to help eligible members pay off any short sale deficiency as a result of having to sell a home at a loss caused by declining real estate values, base closure, service related illness or injury, VA disability, or PCS relocation.

Borrowers facing these problems have become more and more common due to the current economic recession. When eligible homeowners are forced into a short sale (when the sale proceeds amount to less than the amount still owed on the house), the USACE (United States Army Corps of Engineers) will subsidize both a borrower's and lender's loss on the home loan (even if it is not a VA loan).
Expanded HAP was created by Congress to assist military service members and their families who must sell their homes at a loss due to an illness, injury and even death while serving (or as a result of them serving). The American Recovery and Reinvestment Act of 2009 (ARRA) seeks to help additional service members who encounter difficult circumstances as well as civilian Department of Defense (DOD) employees. The expanded HAP definition opens the program to more service members as well as considers the failing economy. This, in effect, avoids the blame and loss that the service members would otherwise have to endure for circumstances beyond their control.

HAP was originally designed to help military personnel during base closure and re-alignment. This took into account the cost for service members who would have to sell their homes immediately or risk default on their home loan. In this situation, the reason the borrower has to short sale is beyond their control. Expanded HAP however, takes into account all scenarios where the need to sell is beyond the borrowers control. In addition to this, the program also helps civilian employees of the Department of Defense, surviving spouses of wounded service personnel and injured or sick military service members.

For circumstances where eligible borrowers are unable to sell their homes, the United States government will step in and purchase the home for either 75% of the original price or for the entire mortgage balance to make up the difference on the home loan. If the loan is financed with a VA loan, the VA can pay the difference up to 25% of the lender’s loss. In the current economic climate, these types of cases are very common. The housing industry decline, when coupled with the recession, is the main need for such a service. What distinguishes traditional short sales from short sales with expanded HAP coverage is that there is no tax liability for those who qualify for expanded HAP and the loan is paid in full. This rule was established on November 11, 2009 and has since provided relief for many service members and their families struggling in the financial crisis.

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The Short Sale Process – the Steps Before the Process Begins

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