When a HUD Home is purchased using VA Financing, is the VA Amendatory Clause required?

Yes, HUD’s Management and Marketing (M&M) Contractor must execute the VA Amendatory/Escape Clause on behalf of HUD if a Department of Veterans Affairs (VA) loan is being used to finance the purchase of a HUD REO property. 
Under limited circumstances, the M&M Contractor is authorized to adjust HUD’s Contract sales price to the VA appraisal value only if the VA appraisal will net HUD an amount equal to or greater than the 2nd Best Offer HUD received as a bid.  The examples below help illustrate the three circumstances under which HUD will permit Contract sales price adjustments for VA-financed purchases. 
If Accepted Bid/1st Best Offer from Buyer financing purchase with a VA mortgage for and VA’s Appraisal values property at but, 2nd Best Offer/Bid Received is The M&M Contractor
$100,000.00 $95,000.00 $98,000.00
  • May adjust the Contract sales price to $98,000.00.
$100,000.00 $95,000.00 $92,500.00
  • May adjust the Contract sales price to $95,000.00.
$100,000.00 $95,000.00 Zero (i.e.,  none exists)
  • May adjust the Contract sales price to $95,000.00.
In all three of these circumstances, if the potential VA purchaser elects to cancel the sale, the Earnest Money Deposit will be returned.
Additional information regarding the VA Amendatory/Escape Clause is located in Chapter 9,1.d in the VA Manual available at https://www.benefits.va.gov/warms/pam26_7.asp
38 CFR 4303(k)(4)

HQ Policy

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-03093