Important Protections Available for VA Loans

In January of 2025, there were two types of foreclosure activity that rose significantly after a policy change at the Department of Veterans Affairs.

The number of foreclosure starts increased by 30 percent while sales rose by 25 percent in January.

This was due to the fact that the Department of Veterans Affairs terminated the ban that was in place to help some distressed borrowers transition from the temporary relief offered during the pandemic. Foreclosure inventory increased by 7 percent.

The increase highlights the full extent of the backlog that amassed as the VA provided borrowers who were left out at the end of the pandemic program in October 2022 an opportunity to use transitional aid through the Veterans Affairs Servicing Purchase (VASP) program as a last resort.

It is difficult to determine whether the increase will become a continuing trend.

The Future of the VASP

According to Bob Broeksmit, President and CEO of the Mortgage Bankers Association, the future of the VASP is uncertain. He noted that during a panel at a recent servicing conference there was criticism from a number of committees in the House, where the Republicans currently hold a majority. He also noted that terminating the program could pose certain challenges to the mortgage market.

The Department of Veterans Affairs has faced challenges when trying to fund relief for distressed borrowers due to fiscal and legislative constraints after it had terminated VASP’s predecessor due to costs. The VASP was meant to be a more cost effective program but the number of resources required to maintain and operate it is significant. Currently, Republicans are currently conducting a comprehensive assessment and adjustment of public spending.

In the meantime, as the number of foreclosures increased, the delinquency rate fell on a consecutive-month basis. Still, it was up ten basis points from last year, which is aligned with recent trends.

It is more important than ever that people with VA loans understand the protections available to ensure they are not being taken advantage of. Below, one of our Fort Lauderdale foreclosure defense lawyers explains what these are.

The VA Protection Clause

The VA protection clause is a very important provision that is required to be included in the sales agreement for all loans that are guaranteed by the VA. This provision provides buyers with the right to back out of purchasing a home if the Notice of Value (NOV) appraisal is lower than the price in the sales contract. Your lender has a duty to ensure that the protection clause is included in the sales agreement before closing on your property.

VA Appraisals

VA home appraisals are an important part of the purchasing process but they are not the same as inspections. Even if you are purchasing a property that is brand new, it is important to have both an appraisal and an inspection. The VA protects veterans by making sure that they purchase properties that are safe, sanitary, and structurally sound. Once the VA appraisal process is completed, you will receive a Notice of Value (NOV) that states the estimated value of the property and any necessary repairs to meet the minimum property requirements under the VA.

When an Appraisal is Lower than the Sales Price

There are a number of protections in place that come into effect when an appraisal is lower than a sales price. These include:

• Tidewater process: When an appraisal is conducted, the appraiser must notify the seller if it appears that the estimated value is lower than the sale price. This must be done before the appraisal is completed. This gives sellers an opportunity to send more information to support the sales price.
• Reconsideration of value: Once the NOV has been issued and the price is not changed, veterans can request an ROV. The market data is then researched and an offer is recommended. This is another chance for sellers to provide additional market data.
• Escape clause: You have the right to choose not to purchase a home if the NOV is lower than the price in the sales contract. Other contingencies should also be included in the sales agreement, such as the right to a home inspection.
• Cash at closing: Sellers might be willing to reduce the sale price to the VA appraised value or offer seller concessions. If the seller is unwilling to negotiate a lower price, you have the right to pay the difference in cash at closing.

The Value Reconsideration Option

Veterans are able to take advantage of the built-in value reconsideration option. This option allows you to contest the appraised property value so you can possibly obtain a better deal. To make the most of this option, it is critical to work with a knowledgeable professional who can guide you through the loan process and ensure that you are properly prepared.

The Cost Approach Appraisal

If you are purchasing a new construction home in a newly developed area, you can ask for a cost approach appraisal. Doing so can help you estimate your home’s value based on the cost of construction instead of relying only on comparable areas in the same location. This option is especially helpful when there are no similar properties in the same location as your new home. If you can leverage this option, you can make sure that you are obtaining the best possible value for the property.

Our Foreclosure Defense Attorneys in Fort Lauderdale Can Help with Your Case

With the increase of VA foreclosures, it is natural that many homeowners are feeling concerned about what the future will bring. At Loan Lawyers, our Fort Lauderdale foreclosure defense attorneys can advise you of your options to ensure you are being treated fairly. If the foreclosure proceeds, we can also offer a number of defense strategies that can help you keep your home, protect your credit, and give you the best chance of a positive outcome. Call us now at (954) 523-4357 or contact us online to schedule a consultation and to learn more about how we can help.