Veteran’s who are looking for a home that is a DEAL, might be considering homes that have (or are) distressed properties. Homes that were recently foreclosed upon or are short sales can come with some additional concerns. Buying a house with a VA Loan when it has tax liens can pose challenges.
Does the Veteran get stuck with the seller’s debts and liens if they purchase a short sale? The short answer is; No. The mortgages, liens and judgements do not generally stay with the house.
Buyers and sometimes their Realtors get concerned that a house in foreclosure may have debts attached to it that will survive the closing of the short sale. Buyers are concerned that they will “inherit” the seller’s debt.
Here are the safeguards against that happening:
- Title search
- Negotiation with lien-holders to release the liens from the property
- Closing attorneys confirm clear title before they administer the transfer
- Title insurance in case of errors in the title clearing process
It’s also very important to remember that the VA Loan program underwriting is slanted to PROTECT the Veteran. Because of this, VA Loan underwriting has stricter appraisal requirements regarding a home’s condition than conventional lending programs do. With a Short Sale, in particular, this is an important fact because ”short-sale sellers” are generally typically have no motivation (or money) to make repairs, and many of these homes need improvements and updates. That’s why the VA appraisal requirements are so strict on Short Sale Transactions.
If you put an offer on a home, and THEN find out that it has an “encumbrance” or lien on it what should you do? The VA requires that taxes be paid, any special assessments (like from the Homeowner’s Association) must also be paid where applicable, before the property can change hands.
If the Veteran knows that their “potential dream home” has these issues, but really wants to purchase it, what can be done to address such issues?
If the seller cannot or will not pay the assessments or taxes that must be satisfied, do VA loan rules permit the VA home loan to cover these costs? According to the VA Pamphlet:
“Generally, VA-guaranteed loans must be first liens. Any existing liens on the property must be paid off or subordinated to the VA loan.”
“A loan to purchase property subject to unpaid delinquent taxes, special assessments, prior mortgage indebtedness, or other obligations secured by effective liens that the veteran agrees to pay or which constitute encumbrances on the property is not eligible for guaranty if the loan amount plus these unpaid obligations exceeds VA’s reasonable value of the property. (Emphasis ours.)
Here’s the deal, if you pay off the taxes, for instance prior to closing – what happens if you don’t end up purchasing the house? You don’t generally WANT to pay any costs PRIOR to owning the house! If the seller will not pay them – then you have very few options.
In those cases, the Veteran should discuss the unpaid items with the Realtor and determine whether the property, as it is, can be eligible for a VA mortgage at all. If this is the ONLY thing that is keeping a Veteran from purchasing the home – it’s up to the Veteran to make the call whether or not the extra expense is worth it.
If you have questions about the Steps to Home Ownership, first time home buyer programs, or specific concerns about buying a house in NC – OR, if you have questions about Buying a House With A VA Loan When it has Tax Liens – please call Steve and Eleanor Thorne NC’s Mortgage Experts 919 649 5058 We offer the best rates, and we would love to help you buy a home in NC!