When a VA Loan Foreclosure Goes Wrong
by Janna Bogert - July 18th, 2022
It is typically unheard of for a VA Foreclosure home to have Title issues, but alas, it was just our luck that it happened to us.
I knew things were going far too easy when the perfect foreclosure (and $20,000 under value) fell into our laps. We had just made a military PCS to Fort Bragg so the timing couldn’t have been more perfect. Everyone assured us that if you are going to buy a foreclosure, the VA Loan was the safest bet.
Our story of using a VA Loan for a foreclosure was our best learning experience, so we hope you can learn from it too!
Reasons to buy a foreclosure home
At first, we heard ‘foreclosure’ and thought that seemed like too much of a gamble since we would have to move into it soon. But as we began to investigate the VA Foreclosures, most had cosmetic issues at best… and at worst, maybe a few appliances needed along with the cosmetics. We factored that into our budget and compared them to homes selling at full-price in the desired area. We found every house we looked at needed at least paint, and most also needed appliance upgrades. Why not save $10,000-20,000 from the start to use towards those?
As a result, our mortgage would be lower, so we could easily recoup the money that we would need to pony up at the beginning. VA Foreclosures are also supposed to be more of a ‘safe bet’, because the VA is known for being very diligent in making sure there aren’t Title issues or anything that could affect the sale of the home. We had a mortgage lender, a real estate agent, found a great VA Foreclosure, and and we were ready to become homeowners!
Buying a foreclosure with a VA Loan
Let’s backtrack a bit. When buying houses, most people visit a real estate agent first, but we like to go to a trusted and recommended mortgage lender first to figure out our spending goal to maximize our investment. This is important, because you may desire to live in a brand new, open floor plan, with coffered ceilings, but you may only be able to afford a dated, 1970’s split level.
What we found was that, technically, we could “afford” a $200,000+ house, but it didn’t match up with our savings and investment goals. The mortgage lender helped us navigate the amortization schedule, gave us an idea of our potential interest rate, recommended real estate agents, discussed discount offers and lender credits, and prepared a pre-approval letter. The most helpful information was steering us towards a VA Foreclosure and navigating us through that process.
What is the VA foreclosure process?
Our real estate agent put in an offer for us, the VA waited a customary three days for any other offers, and then they countered. At the time, we didn’t know that the VA lowers the price about every thirty days, so we probably should have waited it out. We didn’t think we had the flexibility for that and worried that if we waited, another buyer could come along.
Their counter offer was basically the asking price plus $4,000 and they would ‘pay closing costs,’ meaning they wanted to charge us more to offset the closing costs. The VA Loan doesn't usually go above 3% closing costs. If costs end up running 4 or 5% that could mean several thousand more out of pocket. Even when we added the VA Loan Origination Fees (2.15% the first time you use it and 3.3% the second) from our VA Loan and the Loan Origination Fee, it was still in our price range. So, we agreed to the deal and entered into contract.
Buying a VA Foreclosure- one military family's experience
Once you enter a contract using the VA Loan to buy a foreclosure, the procedure goes like other home sales: home inspection, pest inspection, VA Loan appraisal, lots of paperwork, etc. Where the VA Foreclosure really differs is that they are particular about the living conditions of the home. For example, the property we were buying would require a stove, a new bedroom door, some new screens, and pressure washing before the VA would allow us to close on the home.
We could have waited for the VA to contract out some of the work, but we decided to orchestrate it ourselves in an effort to get them done as quickly as possible. {Read: The VA isn’t known to get the repairs done in a timely fashion.} Once the requirements were met, the VA reinspected the property, and then it should have been up to the financial side to push the loan forward.
However, the worst case scenario happened… Title issues with the VA Foreclosure home.
Apparently, the previous owners were able to recover the house from foreclosure because they were stationed OCONUS, and there is a loophole about not foreclosing on a home while the service member is outside of the continental United States. Somehow the VA completely missed that glaring fact even though the hold was in place before we contacted them about the house. It remains a frustrating mystery. Personally, I think it's a wonderful way to protect service members on orders out of the country, but the foreclosure on that particular home began before the homeowners went abroad. It was unfortunate that the situation ended up costing our savings, sweat and tears.
What we learned from our VA Foreclosure nightmare
I’m still resentful that we lost the inspection money and a lot of time and energy, but at least we learned many valuable lessons. We are now much more comfortable with VA Loans and foreclosures, we’ve gotten to know our mortgage lender and real estate agent VERY well, and we are embracing the motto that patience is key to buying a home.
We thought we just HAD to be in a home as quickly as possible, and yet we still aren’t and it’s not the big deal we thought it would be. We have a roof over our heads and are in control of when we move, which is one of the reasons I recommend moving into a rental and then looking for a house. This experience is not going to deter us from a VA Foreclosure either, because you just can’t beat the deals.
As you read this, we are {impatiently} awaiting the next one to pop up and we can’t wait to attack it head on. And by head on- I mean we will be more calculating about the efforts we put into it, and we won’t get ahead of ourselves like last time.
Janna Bogert is a software analyst, freelance writer, blogger, landlord, military spouse, and new mom trying to find a balance for it all. She and her husband made Investing a priority as newlyweds, and recently added Real Estate Investing to their portfolio. After renting at three military installations, they decided it was time to make their money work for them, and she hopes to share all that she has learned along the way. You can read more of her writing at http://perceptioniseverything.blogspot.com/
