VA Net gets reduced to 88.05% on Short Sales!

Based on the recent year's fiscal data, the Veteran's Administration (VA) announced a change regarding the percentage to be used in calculating the minimum net proceeds required for a property secured by a terminated loan (Short Sale, Deed in Lieu, Foreclosure).

The VA uses the net value of the property to determine the minimum net proceeds required. The net value of the property equals the Fair Market Value (FMV), minus the total costs. The costs in determining the minimum net proceeds required include approved closing costs for short sale transactions and the acquisition and disposition costs for properties acquired because of foreclosure or Deed in Lieu of Foreclosure.

With VA compromised sales (short sales), a VA appraisal is done on the property after an offer is obtained so the FMV can be determined. The minimum net proceeds requirement is then determined by taking the FMV and subtracting the percentage of the average costs.

Over that past several years, the VA has required the short sale offer to meet a minimum net proceeds amount equal to 88.13% of the fair market value (FMV) of the property, or the fair market value less 11.87% for the average expenses involved in the sale. For example, if the FMV of a property is $150,000, the minimum net proceeds of the sale were required to meet or exceed $132,195.

After reviewing last year's data, the VA is lowering their minimum net requirement to 85.05% of the FMV, or 14.95% for the average expenses. If we use the same example from above, the FMV of $150,000 would require minimum net proceeds equal to $127,525!

This change was published in a notice in the Federal Register on August 9, 2013 and is effective for all Notices of Value (NOV), or appraisals, issued on or after October 8, 2013. If the issue date of the NOV, or appraisal, is prior to October 8, 2013, the net value percentage will be at the old percentage of 88.13%, or 11.87% of the average expenses.

For anyone in the short sale arena who has worked with VA compromised sales, you should see this as welcomed news! Many VA appraisals have been coming in too high to obtain an offer, which has put negotiations at a standstill until the current appraisal expires (six months). This needed change will hopefully help you close more deals!