Military Short Sale Programs:

The VA Compromise Sale Program

The VA Compromise Sale Program is often referred to as the VA Short Sales program. Many homeowners who are looking to sell their homes today are finding that, in the current economic climate, the market value of their home is less than the amount owing on their mortgage. However, if their home loan was financed as a VA Loan, they may be eligible for assistance through the VA Short Sales Program.

VA Loan summary

The VA Loan is a program administered through the Department of Veterans Affairs, available to eligible service persons and veterans to help them to negotiate home loans at more favorable terms than most borrowers would have access to.  

VA does not provide the funds; the mortgage is still issued through a private bank, like any other mortgage. But VA provides a loan guaranty to the lender, promising to pay a specific amount to the lender in case they are unable to continue making payments on their loan. They do not guarantee the entire value of the loan, but a percentage. This can range from 50% on loans up to $45,000 (i.e. maximum $22,500), to between 25% and 50% of loans up to $144,000, and up to 25% of the Freddie Mac conforming loan limit on loans over $144,000.

The maximum amount that VA will guarantee a loan for is called the “entitlement.”  It is like an insurance policy for the bank. Active-duty service persons can qualify for entitlement. The amount of entitlement that a service person is eligible to receive can be found on their Certificate of Eligibility, available from VA.

The advantage of getting a home loan through the VA program is that borrowers receive much more favorable mortgage terms. Since the bank receives the loan guaranty from VA, borrowers can negotiate a loan with little or no money down - even a deposit of 0% - and receive lower interest rates.

Why would a homeowner choose to proceed with a VA Short Sale?

Sometimes, circumstances force the sale of a home at a lower sale price than the original purchase price. For members of the military, reasons to sell a home at a loss might be because of a permanent change of station, or a change in marital status.

If the home was purchased with a VA Home Loan, the seller might be eligible for the VA Compromise Sale Program. If an offer to purchase is received that is less than the amount owing on the home loan, the homeowner can send a request to VA to undertake a “compromise sale” (or short sale). If VA approves the sale, they will pay the lender the difference between the purchase price and the amount owing on the VA mortgage, up to the amount that they guaranteed on the original home loan.

In a regular short sale, the homeowner is dependent upon the lender agreeing to take a financial loss - absorbing the difference between the amount owing on the mortgage and the sale price of the house - in order for the homeowner to rid themselves of a mortgage that they no longer can service. If the lender does not approve the short sale, it cannot go ahead. The advantage of a VA Compromise Sale or Short Sale is that VA takes some or all of the loss, through their loan guaranty, making it much more likely that the lender will approve the short sale.

Eligibility requirements:

The VA Compromise Sale program is for homeowners who have already received a purchase offer on their home that falls short of the amount owing on their mortgage, and whose mortgage was negotiated through the VA Home Loan program.

In order to qualify for the program:
- the seller must demonstrate financial hardship
- the home must be sold at fair market value based upon current market conditions
- there must be no second lien or other lien on the home, unless the value of that lien is deemed by VA to be “insignificant” (In situations whereby there are second liens or other liens, the seller can request that the lien-holder consider releasing the lien and converting the loan to a personal loan.)
- closing costs for the sale must be considered “typical” for such a sale
- the compromise sale must be less costly to the government than foreclosure would be
- the borrower must provide a statement explaining why they must sell the property
- a VA appraisal will be required
- on loans that originated on or before December 31, 1989, the seller must be willing to sign a promissory note and enter into a payment plan to compensate VA for a portion of the compromise claim payment.

To protect the seller’s interest, the seller should make the sales contract subject to the approval of a VA compromise sale.


The homeowner must first receive a purchase offer, at current fair market value, that is lower than the amount owing on the mortgage. Once this offer has been received:

1. Find out if your lender has a Loss Mitigation Department that has been authorized by VA to process a VA compromise sale. You can find an up-to-date list of authorized lenders here or you can contact your lender to ask them.

2. If your lender does have a VA-authorized Loss Mitigation Department, contact them directly for the forms. If they do not, then contact your regional VA office for forms.

3. Fill out a financial status report form, provided by your lender or the VA. You can download the form here (PDF).

4. Complete a letter of request.

5. Complete a Compromise Agreement Sale Application form, provided by your lender or the VA.

VA will then work with your lender and review the application. If they approve the short sale, VA will pay the lender the difference between the mortgage balance and the proceeds of the sale - up to the value that the VA Loan was guaranteed for.

When VA pays the lender the difference between the sales price and the total debt, the portion of the homeowner’s entitlement used to guarantee the loan will remain tied up until VA is reimbursed in full.

Further information:

Updated list of VA-authorized lenders:
If your lender is not on this list, VA will process the Compromise Sale/Short Sale directly.

Regional loan centers contact information:

More information (PDF Document): Sale Program.pdf

VA Compromise Sale Program - Info for Real Estate Professionals:

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:


HAP Homeowners Assistance Program: An Option for Military Homeowners with Negative Home Equity

The Department of Defense’s Homeowner’s Assistance Program (HAP)was originally designed for members of the American military who are affected by Base Realignment and Closure (BRAC). Announcement of a base closure could cause a drop in local house prices, forcing military members to take a loss on their home sale. The HAP program is authorized in Section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 (as amended), to provide financial assistance to eligible federal personnel - including military, Coast Guard, and some civilian - who are faced with losses on the sale of their home as a result of a BRAC move.

The government’s economic stimulus package, through the American Recovery and Reinvestment Act of 2009, modified the plan to what is known as “Expanded HAP”. The new “Expanded HAP” makes more military members and civilians eligible for assistance by including those undergoing a Permanent Change of Station (PCS) move. It also removes the requirement to prove that the house price decline was a result of the BRAC announcement.

The HAP program helps military members to sell their home and make their move, without having to go to their lenders to try to have a short sale approved.

The new Expanded HAP program is open to:
- Wounded members of the Armed Forces (30% or greater disability) and wounded Department of Defense (DoD) and Coast Guard civilian homeowners reassigned in furtherance of medical treatment or rehabilitation or due to medical retirement in connection with their disability,
- Surviving spouses of the fallen,
- Base Realignment and Closure (BRAC) 2005 impacted homeowners relocating during the mortgage crisis, and
- Service member homeowners undergoing Permanent Change of Station (PCS) moves during the mortgage crisis.

Who can apply:
The HAP program is undergoing on-going amendments, as the government works towards finding ways to help distressed military homeowners in the current unpredictable and changing economic climate. It is best to contact HAP directly (contact details below) to get advice specific to individual situations.

General guidelines to qualify for HAP assistance for those applying as a result of a PCS move are:
- they must be active-duty military personnel
- the PCS move must be greater than 50 miles, with PCS orders dated between February 1, 2006, and September 30, 2010 (closing date is subject to availability of funds)
- the home must have been their primary residence at the time the move was announced
- county, parish and city home values must have dropped by at least 10% between July 1, 2006, and the HAP application date; and the individual home value also must have dropped by 10% between the date of purchase and date of sale.

Current regulations are that the home must have been under contract to purchase prior to July 1, 2006. Many military members purchased their homes just after this cut-off date, and an amendment under discussion may open the program to homeowners who purchased after this date.

Guidelines for applicants eligible as Wounded, Injured or Ill and Surviving Spouses are slightly different, e.g. the requirement to purchase the primary residence prior to July 1, 2006 does not apply.

HAP provides assistance to military homeowners faced with selling their home at a loss in a number of different ways. The exact ways that HAP may help depend upon which eligibilty requirements the homeowner applies under. For those who are applying as a result of a PCS move, HAP may help by:
- if foreclosure is taking place, providing financial assistance after foreclosure by paying some of the expenses,
- if a private sale is taking place at a loss, reimbursing 90% of the difference between the purchase price and the sale price, plus closing costs,
- if a home sale cannot be negotiated within 120 days, purchasing the home directly by paying either 75% of the purchase price or by paying out the mortgage, whichever is greater (HAP will not reimburse or pay out second mortgages).

How to apply:
Contact your nearest HAP office or visit the HAP website from application forms. A complete HAP application package must include:
- Form HUD-1 - proof of home purchase
- Proof of ownership - copy of deed
- proof of occupancy at time of receipt of PCS orders (e.g. utility bill)
- proof of program eligibility

Important things to know when applying for HAP:
1. You must be actively marketing your home, and seeking to sell it at Fair Market Value.
2. HAP does not reimburse the full negative value of your property, but a percentage that ranges between 75% and 95% of that negative value.
3. HAP applications are processed in chronological order that the completed applications are received. Incomplete applications will be ignored until all documents are in order, so it is very important to make sure that your application is complete. Order of processing priority is by eligibility: (1) Wounded Injured Ill and Surviving Spouse, (2) BRAC 05 moves, (3) PCS moves.
4. A member may receive benefits only once through this program.
5. As of November, 2009, HAP benefits are no longer taxable.

HAP website:
DoD HAP National Hotline: 1-888-363-4271
General HAP brochure:
Expanded HAP info brochure:
Online discussion forum:

If you are a homeowner, and would like to learn more about short selling your home, please go to:

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to:


Quick Response Form

Please tell us about your situation:

* required field
Legal consultations provided
to all homeowners at no cost. Privacy guaranteed.