VA Compromise Sales: The Hidden Advantages for Military Homeowners
Discover the advantages of VA Compromise Sales for military homeowners facing financial hardship. Learn how to preserve VA loan entitlement and avoid foreclosure effectively.
When military servicemembers and veterans face financial hardship, the Department of Veterans Affairs (VA) offers a specialized alternative to foreclosure known as a VA Compromise Sale (the VA's term for a short sale). While similar in concept to conventional and FHA short sales, VA Compromise Sales include unique features and advantages specifically designed to protect those who have served our country.
This guide explores the VA Compromise Sale process with special attention to its lesser-known benefits and strategic considerations that can make a significant difference for military homeowners in distress.
Understanding VA Compromise Sales: The Basics
What Sets VA Short Sales Apart
A VA Compromise Sale allows a homeowner with a VA-guaranteed loan to sell their property for less than the outstanding mortgage balance. The VA may pay a "compromise claim" to the loan servicer to cover part of the difference between the sale price and the loan balance, helping veterans avoid foreclosure while allowing lenders to recoup some of their investment.
Key distinguishing characteristics include:
No pre-marketing approval requirement (unlike FHA short sales)
More flexible timeline requirements than many other loan types
Special provisions for active duty servicemembers with Permanent Change of Station (PCS) orders
Potential for relocation assistance of $1,500
Usually includes a full release of liability for the borrower
The Hidden Advantage: VA Guaranty Preservation
Understanding the "Serious Deficiency Waiver"
One of the most significant yet least understood benefits of a VA Compromise Sale is the potential for veterans to preserve their VA loan entitlement through what's called a "serious deficiency waiver."
When a VA loan ends in foreclosure, the veteran typically loses the portion of their VA loan entitlement that was used to guarantee that loan. However, in a properly executed Compromise Sale where the VA issues a serious deficiency waiver, veterans may be able to have their entitlement restored much sooner than the typical waiting period after a foreclosure.
This preservation of VA loan entitlement is crucial because:
It may allow the veteran to purchase another home using their VA benefit sooner
For veterans with partial entitlement remaining, it prevents further reduction of their available guaranty
It can be particularly valuable in high-cost areas where maximum entitlement is needed
Eligibility for Entitlement Preservation
To maximize the chances of entitlement preservation, veterans should:
Demonstrate clear financial hardship that is beyond their control
Ensure all required documentation is complete and submitted promptly
Work with a real estate agent who understands how to properly structure the request
Explicitly ask the VA to consider a serious deficiency waiver as part of the Compromise Sale
While not guaranteed, veterans who follow these steps have a better chance of protecting this valuable benefit.
PCS Orders: The Military-Specific Advantage
Special Considerations for Active Duty Transfers
For active duty servicemembers who receive Permanent Change of Station (PCS) orders, the VA offers unique accommodations that aren't available with other loan types:
No Delinquency Requirement: Unlike many short sale programs that require missed payments, active duty members with PCS orders can often pursue a Compromise Sale while remaining current on their mortgage
Streamlined Hardship Documentation: PCS orders themselves may constitute sufficient hardship documentation, simplifying the approval process
Protection for Security Clearances: By allowing servicemembers to avoid delinquency, the VA helps protect their credit and, by extension, their security clearances
Expedited Processing: Many VA loan servicers prioritize Compromise Sale requests from active duty members with PCS orders
This approach recognizes the unique challenges faced by military families who must relocate frequently, often to areas with significantly different housing costs.
Strategic Insights for Successful VA Compromise Sales
The VALERI System Advantage
A little-known aspect of VA Compromise Sales is the role of the VA Loan Electronic Reporting Interface (VALERI) system. Understanding how this system works can provide strategic advantages:
VALERI automatically tracks timelines and requirements for VA loans in default
The system generates standardized "no-value" determinations when appropriate
Knowing the VALERI timeline allows for strategic timing of short sale offers
VALERI notifications can be used as leverage in negotiations with servicers
Real estate professionals who understand the VALERI system can better navigate the approval process and anticipate potential roadblocks.
The Two-Tier Approval Process
Unlike many other short sales where only the lender's approval is needed, VA Compromise Sales require approval from both the loan servicer and the VA itself. This creates both challenges and opportunities:
Challenge: Two approvals can mean a longer timeline
Opportunity: If one party approves but the other initially declines, you can leverage the first approval to advocate for reconsideration
Strategy: Submit complete packages to both entities simultaneously when possible
Insight: The VA's Regional Loan Centers often have specific preferences and requirements that may differ slightly from national guidelines
Understanding which entity (servicer or VA) is more likely to raise objections based on your specific situation allows for more effective preparation and negotiation.
VA Loan Technicians: The Underutilized Resource
Building Relationships for Better Outcomes
One of the most valuable yet underutilized resources in the VA Compromise Sale process is the VA Loan Technician assigned to review the case. These individuals have significant discretion in approving various aspects of the sale:
They evaluate whether the sale is in the government's best interest
They determine if relocation assistance will be approved
They make recommendations regarding entitlement restoration
They can expedite processes when circumstances warrant
Building a professional relationship with the assigned Loan Technician can make a substantial difference in the outcome. Strategies include:
Introducing yourself professionally at the beginning of the process
Providing organized, complete documentation that makes their job easier
Being responsive to requests for additional information
Understanding their review metrics and approval requirements
Real estate professionals who develop a reputation for well-prepared VA Compromise Sale packages often find their subsequent cases receive more favorable consideration.
Navigating the VA Liquidation Appraisal Process
Understanding "Net Value" Calculations
The VA uses a unique approach to property valuation that differs from conventional and FHA short sales. Understanding this "net value" calculation provides significant advantages:
The VA calculates a "net value" by subtracting their cost of acquisition and resale from the estimated property value
This formula results in an effective acceptable threshold of approximately 84.05% of the appraised value
The VA will generally accept any offer that provides them with this net value or better
This calculation is more formulaic and potentially more favorable than the subjective value determinations used in many conventional short sales
When challenging a VA liquidation appraisal that seems too high, focus specifically on factors that would impact the VA's net recovery rather than just comparable sales prices.
Special Scenarios and Solutions
Second VA Loans and Partial Entitlement
Veterans who have used their VA benefit before and still have partial entitlement remaining face special considerations:
A Compromise Sale on a second VA loan may affect both the current and previous entitlement usage
In some cases, veterans can request restoration of entitlement from a previous VA loan to consolidate their available benefit
Specific documentation of the subsequent use of entitlement must be carefully prepared
The VA may consider full entitlement restoration based on the specific hardship circumstances
Working with both the VA Regional Loan Center and the central entitlement division in Washington, DC may be necessary to resolve complex entitlement issues.
VA Compromise Sales After Loan Modification
Veterans who have previously received a VA loan modification face unique challenges and opportunities:
The VA generally views attempts at loan retention (like modifications) favorably before considering liquidation options
Documentation showing good faith efforts to maintain payments under the modified terms can strengthen the Compromise Sale case
Modified loans often have specific investor requirements that must be addressed
The VA may be more willing to approve entitlement restoration when the veteran made sincere efforts to retain the home
Properly documenting the progression from loan modification to Compromise Sale can significantly improve outcomes.
Post-Compromise Sale Strategies
Agent field SOP (VA Compromise)
Intake day 0–2: Verify VA loan and servicer, pull statement and confirm guaranty; collect PCS orders or hardship docs
Day 3–5: Submit complete packet to servicer AND VA simultaneously; request Loan Technician contact; ask for deficiency waiver consideration in cover note
Day 6–14: Prepare valuation kit (3 comps, repair bids, photo set) and draft estimated HUD showing VA net value math
Approval: Confirm relocation assistance eligibility, deficiency waiver language, and close window; coordinate insurance and occupancy
Entitlement and waiver checklist (printable)
Request serious deficiency waiver in writing with hardship summary
Ask for written confirmation of guaranty/entitlement status post‑close
Keep copies of approval letter, waiver decision, and RLC correspondence
After close, obtain updated COE (Certificate of Eligibility) showing current entitlement
Cover memo (copy/paste)
Subject: VA Compromise Sale – [Address] – Net Value Supported; Deficiency Waiver Requested
Hardship/PCS: [one line, dated]
Offer/Close: $[price], [financing], target close [date]
VA Net Value: Appraisal $[X] → VA net threshold (~84.05%) $[Y] → Estimated HUD net $[Z] (meets/ exceeds)
Entitlement: Requesting serious deficiency waiver; veteran made good‑faith retention attempts on [dates]
“We’ve submitted a complete compromise packet with net value support and a written waiver request. Please advise any additional documentation your review requires.”
Servicer escalation
“VA net threshold is met on the attached HUD; RLC is copied. Please align approval to target close [date].”
Timeline guide
Packet submission → Loan Technician assignment: ~5–10 business days
Valuation and net review: ~10–21 days
Dual approvals (servicer + VA): ~7–14 days post‑valuation when files are complete
Close window: ~21–30 days
FAQs (agent)
Can a current loan qualify with PCS? Often yes; delinquency isn’t always required with PCS orders
How is net value computed? VA liquidation appraisal less acquisition/resale costs; threshold ≈ 84.05% of appraised value
Will the borrower always get a waiver? Not guaranteed; strengthen with hardship proof, good‑faith payment history, and clean file
Expedited Re-Use of VA Benefits
After completing a VA Compromise Sale, veterans should implement these strategies to maximize their future VA loan opportunities:
Request written confirmation of the exact status of their VA loan entitlement
Document all correspondence regarding entitlement restoration or preservation
Establish a clear paper trail showing the hardship was beyond their control
Begin rebuilding credit immediately with specific focus on housing-related payments
Consider working with VA-experienced lenders who understand the nuances of post-Compromise Sale lending
With proper documentation and preparation, many veterans can qualify for another VA loan in as little as two years after a Compromise Sale, compared to up to seven years after a foreclosure.
Leveraging the VA Regional Loan Center (RLC) System
The VA's regional structure provides an often-overlooked advantage for veterans seeking assistance after a Compromise Sale:
Different RLCs may interpret guidelines slightly differently
Some RLCs have specialized programs for veterans in their region
Building relationships with specific RLC personnel can facilitate future transactions
RLCs can provide official documentation regarding loan status that lenders will accept
Knowing which RLC has jurisdiction over your property and maintaining contact information for key personnel can provide valuable advantages in both current and future transactions.
Case Study: The Difference Between Foreclosure and VA Compromise Sale
Comparing Long-Term Outcomes
Consider the case of two veterans with similar financial hardships:
Scenario
Veteran A: Foreclosure
Veteran B: VA Compromise Sale
Initial Impact
Credit score drop of 240 points
Credit score drop of 160 points
VA Entitlement
Lost for minimum of 3-7 years
Potentially preserved with deficiency waiver
Housing Transition
Forced eviction with uncertain timeline
Planned move with potential relocation assistance
Future VA Loan
Waiting period of 2-3 years with excellent post-foreclosure credit
Potentially eligible immediately with deficiency waiver, typically 2 years otherwise
Security Clearance
Potential negative impact
Minimal impact when properly documented
This comparison highlights how the strategic choice of a VA Compromise Sale can significantly improve long-term outcomes for veterans, particularly regarding their ability to use their VA loan benefit in the future.
Conclusion
VA Compromise Sales represent a specialized pathway for veterans and servicemembers facing financial hardship. While sharing some similarities with other short sale programs, the unique features of the VA process—particularly regarding entitlement preservation and special considerations for active duty personnel—can provide significant advantages.
By understanding the VA's specific approach to Compromise Sales, including the VALERI system, the two-tier approval process, and the critical role of VA Loan Technicians, veterans and their real estate professionals can achieve more favorable outcomes. The potential for preserving VA loan entitlement represents perhaps the most valuable but least understood benefit of choosing this path over foreclosure.
For servicemembers and veterans facing mortgage challenges, the VA Compromise Sale offers more than just a way to exit an underwater property—it provides a strategic pathway to preserve their hard-earned VA benefits for the future.
I'm a co-founder of KW Default Solutions, where we teach real estate professionals to master distressed property transactions including short sales, REOs, and foreclosures. With over 20 years of real estate experience and a passion for technology innovation, I combine industry expertise with cutting-edge solutions to help agents build recession-proof businesses. I'm particularly focused on developing AI tools and custom applications that streamline complex default processes, making it easier for our community members to navigate challenging transactions while delivering exceptional results for distressed homeowners.
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