Marine Sgt. Scott Rocco and his wife, Chylea, were ecstatic when they learned in November that they would receive $93,026 from the Homeowners Assistance Program.
"This money enabled us to pay off most of our debt and purchase a new home, and even put in a pool," he said.
The couple had had a difficult time over the past few years trying to sell their home near Quantico, Va., after moving to a new assignment at Camp Pendleton, Calif., in 2006.
Last fall, they finally negotiated a short sale with their bank for $140,000, which meant the bank forgave $120,284 on one loan and about $52,000 on another loan that they took out to purchase the home. They don't have to repay the difference.
But their lives turned upside down Feb. 4 when Scott Rocco got an e-mail from HAP officials telling him they had overpaid him by $83,692, and he would have to repay the money.
"This has been a huge blow," said Rocco, who will soon medically separate from the Marine Corps after 10 years of service because of a back injury during training.
HAP reimburses service members for losses they incur in selling their houses in circumstances related to military service — wounded warriors relocating for medical care, surviving spouses of fallen troops, those affected by base closures and realignments, and those selling because of reassignment.
Rocco's situation falls in the PCS category, as do 98 percent of those who have applied for assistance under the program.
"In the first place, I wondered, why pay me instead of the bank," Rocco said. "They've had the short-sale contract from the beginning. I'm not saying I should have gotten the money. But this has put my whole family in a horrible situation. This is going to bankrupt my family."
When Rocco found out how much money he would receive, he said he asked HAP officials repeatedly if he would have to pay any of the money to the bank. "They said I had no liability," he said.
If he had these gut feelings, why did he spend the money?
"After I'd spoken to the HAP representatives, and they said everything had been triple-checked, I had confidence that if they said it was my money, it was," he said. "I trusted them to be accurate. I had spent months going through the process."
HAP officials admit they made a mistake in Rocco's case — and 11 other overpayments that are in stages of investigation and recovery.
"Sergeant Rocco was paid twice," said Ralph Werthmann, chief of the real estate division of the Savannah, Ga., district of the Army Corps of Engineers. "First, his loan was forgiven by the bank. Then he was paid by us. There's no question we made an error. But the fact remains we overpaid him. He was not due that money."
Werthmann said HAP officials have told Rocco they will work with him on a repayment plan.
Rocco said he's doubtful he'll be able to pay it back. He used the money for things unrelated to the previous debt on his Virginia house. In addition, Rocco found out he'll have to pay California taxes on the amount left on the loans that the bank forgave because that money is considered income.
There's no question that government employees can make mistakes. And there's no doubt the government has ways of collecting that money.
Listen to your gut. If it has you wondering why you're getting a large payment, even if you've questioned the source, what's the harm in putting it in the bank until the situation sorts itself out?
Don Chapman, assistant manager of HAP, says officials want to help as many service members as possible. Congress initially funded the program with $550 million in 2009 and added $323 million for this year.
As a result of the overpayments, Werthmann said HAP officials have made changes, such as having applicants provide a mortgage verification statement, which requires that they state when a loan has been forgiven by the bank.
At the time of his short sale, Rocco said, the damage to his credit from that process "seemed small in comparison to monetary compensation."
Now he still has credit problems — and they could get worse.
"I can't even get a car loan now due to my credit issues resulting from the short sale," he said. "I was floored when they said my benefit was over $90,000. But I would have been better off if I hadn't gotten a benefit at all."