VA Amendatory Escape Clause

If a VA-eligible veteran or service member is buying a home and has problems with the appraisal, they can use the VA amendatory escape clause form. The VA amendatory escape clause form allows the borrower to terminate the sales contract if the home's selling price exceeds the VA appraisal's determination of the home's fair value.

The FHA/VA amendatory escape clause is usually written into most real estate sales agreements. If the amendatory clause is not included in your sales contract, or you want more information, please read on.

Here is the Amendatory Clause:

"It is expressly agreed that, notwithstanding any other provision of this contract, the purchaser shall not be subject to any penalty, including forfeiture of earnest money, or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the property's reasonable value as determined by the Department of Veterans Affairs"

This clause says that the Veteran is free to back out of the sale if the appraisal comes in lower than the purchase price. And any money put down as a down payment will be returned to the Veteran.

The amendatory clause formalizes what most home buyers want in a purchase deal.

Buyers often insist on an appraisal contingency in most purchase agreements, whether VA loan or not. This contingency enables purchasers to cancel the purchase and retain their earnest money if the property appraises below the contract price.

Can You Avoid the VA Amendatory Escape Clause When Buying a House?

No. There are no exceptions with the VA Amendatory Escape Clause when buying a house.

The VA amendatory escape clause is nothing more than an appraisal contingency. An appraisal contingency can be found in most sales contracts, and VA loans or not. This contingency enables purchasers to cancel the purchase and retain their earnest money if the property appraises below the contract price.

What Happens if the VA Appraisal Comes in Lower Than the Purchase Price?

A VA loan cannot be issued for more than the appraisal value. Should the appraisal come in less than the sales price? The VA does allow the Veteran to cover the difference between the sales price and appraised value.

There are a few options for a low appraised value:

Reconsideration of Value

A reconsideration of value (ROV) may be the best choice if a low-quality VA appraisal.

If you are a veteran or active duty military and using your VA home loan benefit to purchase a home, it's essential to understand the VA amendatory escape clause. This clause allows you to get a reconsideration of value from the VA if the appraisal comes in lower than the purchase price. The key is to act quickly–you have just 60 days from the date of closing to submit your request.

If other comparable properties can be found to substantiate a higher value, the Veteran's Administration could reconsider its determination of value.

Ask the Home Seller to Reduce the Sales Price

One of the usual strategies VA house buyers employ to get around a low assessment is negotiating a price reduction with the seller. Some homes sell for more than they're worth. An appraisal from the VA that comes in low should signal to the current owner that their property may not be worth as much as they think. They may then lower the price they are asking to bring it in line with the appraisal value, making it possible for the VA loan to be approved.

The Veteran Can Cover the ‘Appraisal Gap’ in Cash.

Another option In a hot market or facing other home buyers bidding on the house is to pay the difference between the appraised value and the sales price.

According to the Department of Veteran Affairs:

The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs (Authority: 38 U.S.C. 501, 3703(c)(1)).”

Split the difference with the seller

Ask the seller if they will split the difference between the appraised value and the sales price.

Is the VA Loan Escape Clause Negotiable?

The VA escape clause is non-negotiable. Once again, the VA escape clause is nothing more than an appraisal contingency.

Who Signs the VA Amendatory Escape?

Before signing the purchase contract, the borrowers, and sellers must sign the VA amendatory clause (escape clause); otherwise, the VA will not guarantee the loan when it closes. When both the buyer and the seller sign the paper, it becomes legally binding for all parties concerned.

Why Does the Department of Veterans Affairs Have an Escape Clause?

The VA has an escape clause with home purchases to protect veterans and ensure they get a fair deal. The VA's escape clause allows veterans to withdraw from a contract without penalty if the property's appraised value exceeds the agreed-upon purchase price. If you're looking to buy a home using your VA benefits, you won't be stuck with a bad deal just because you've already signed the dotted line.

The reason behind this escape clause is simple: it's all about protecting veterans. The VA understands that many service members may not have extensive experience in real estate transactions and may be unfamiliar with local housing markets or wary of being taken advantage of by unscrupulous sellers., and this.

Conclusion

The VA escape clause form, also known as the VA amendatory clause, is an essential component of any mortgage or sales contract that protects the buyer in case of a low appraisal. This clause states that if the property's appraised value is lower than the sales price, the buyer cannot be forced to purchase the property and shall not incur any penalty by forfeiture of earnest money. The escape clause allows the buyer to leave the sale without losing money if the appraisal does not meet their expectations.

The purpose of the VA amendatory clause is to ensure that the buyer is not forced to pay more for a property than it is worth. This is particularly important in the case of VA loans, as they are guaranteed by the government and therefore have stricter appraisal requirements. The appraisal helps to determine the fair market value of the property. The amendatory clause protects the buyer from financial penalties if it falls short of the sales price.

The escape clause is a common feature of most mortgage contracts, including conventional, FHA, and USDA loans. An appraisal contingency allows the buyer to withdraw from the sale if the property's value is lower than expected. Without this clause, the buyer could be forced to pay more for the property than it is worth or incur penalties for backing out of the sale.

Overall, the VA escape clause form is essential to any mortgage or sales contract, as it protects the buyer from financial loss if the appraisal does not meet their expectations. By including this clause, buyers can have peace of mind knowing they will not be penalized for withdrawing from the sale due to a low appraisal value.

SOURCE:
Escape Clause for the Sales Contract
https://www.vestasettlements.com/blog/2019/11/23/waiving-the-amendatory-clause