A Break for Military Families

An obscure provision tucked into the economic-stimulus legislation in the spring can help military families who have to sell their home at a loss. The law provides an extra $555 million to expand the Department of Defense’s Homeowners Assistance Program. The program already helps families who lose money if they’re forced to sell because of a base closing. Now it applies to wounded service members, surviving spouses of service members who die while deployed and members of the military who have to move more than 50 miles because they receive permanent change-of-station orders.

The law states that the home must be the service member’s principal residence and must have been purchased before July 1, 2006. The reassignment must be ordered between February 1, 2006, and September 30, 2012, and the home must be sold between July 1, 2006, and September 30, 2012 (although the Department of Defense could change some of these dates).

The Defense Department is still ironing out the details of the expanded program and hopes to finalize regulations soon. The law says that qualified service members may receive a cash payment of up to 95% of the loss when selling their home, or the program will pay off their mortgage or buy their home and pay up to 90% of its previous value. But the government has the authority to lower payout amounts and is likely to offer smaller percentage payouts to certain groups, such as service members who are reassigned to a new duty station, because there isn’t enough cash to cover everyone who could qualify.

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Caveats

If you are eligible for assistance, remember that even though the program may minimize your home-sale losses, it won’t eliminate them entirely. Military personnel who are planning to return to the area and can make enough in rental income to cover their mortgage, taxes and maintenance may do better to wait for the housing market to turn around before they sell, says June Lantz Walbert, a financial planner with USAA. Rents are lower in many areas, so run the numbers.

Walbert says the program may be particularly valuable if your home has depreciated by more than 30% or if the property was highly leveraged from the beginning (for example, if 100% financing was used to purchase the home) because the government could end up paying off the mortgage in full. But the specific analysis will vary depending on some key pieces of the regulations that have not yet been finalized. Still up in the air: the percentage of loss the program will cover in each situation, how the program will calculate the loss, and whether the benefits will be taxable. Because so many of the details haven’t been worked out, keep an eye on the Homeowners Assistance Program Web site of the U.S. Army Corps of Engineers for updates.