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MODERATORS: This is a double post (also posted to the mortgage forum). Please don't remove???
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Does anyone out there know the answer to the following question:
Background:
A borrower has a home that goes into foreclosure and then is sold at a foreclosure sale, resulting in a small deficiency balance (meaning the home is sold for slightly less than the outstanding balance, plus interest, plus legal fees) of around $3500.
The lender then files a loss claim with the private mortgage insurance (PMI) company, which the PMI company pays.
The PMI company (NOT the lender) then, a year later, sues the borrower in a civil suit for the deficiency balance based on the fact that they (the PMI company) paid out more in the loss claim than the amount of the deficiency balance.
Questions:
1. Does anyone know if this is legal?
2. If yes, how is this legal? The whole point of paying PMI in the first place is to protect the lender in just such a case of default.
Any thoughts welcome!
(Oh, and before I'm bombarded by anyone who has negative thoughts about individuals who let their homes go into foreclosure, this particular home was lost because of unexpected medical disability. If you could kindly resist with your comments, I would appreciate that.)
I was going to post something along the lines of your #2 point. This is scary...not that I'm worried about foreclosure...but I do pay $150 a month in PMI...what the heck for?!?!
MODERATORS: This is a double post (also posted to the mortgage forum). Please don't remove???
__________________________________________________ ____
Does anyone out there know the answer to the following question:
Background:
A borrower has a home that goes into foreclosure and then is sold at a foreclosure sale, resulting in a small deficiency balance (meaning the home is sold for slightly less than the outstanding balance, plus interest, plus legal fees) of around $3500.
The lender then files a loss claim with the private mortgage insurance (PMI) company, which the PMI company pays.
The PMI company (NOT the lender) then, a year later, sues the borrower in a civil suit for the deficiency balance based on the fact that they (the PMI company) paid out more in the loss claim than the amount of the deficiency balance.
Questions:
1. Does anyone know if this is legal?
2. If yes, how is this legal? The whole point of paying PMI in the first place is to protect the lender in just such a case of default.
Any thoughts welcome!
(Oh, and before I'm bombarded by anyone who has negative thoughts about individuals who let their homes go into foreclosure, this particular home was lost because of unexpected medical disability. If you could kindly resist with your comments, I would appreciate that.)
Thanks!
To my understanding, yes, this is legal and the way things are done.
I have been told that they can sue to recover the difference, but I am no attorney. I will see if I can find any info on this and post it if I do.
That is heinous - medical bills. The number one reason for bankruptcy in this country are medical bills - a scary thought and NOT RIGHT. (sorry for digression - big issue for me).
Oh, Ani - I don't mind the digression. And Loves, I definitely appreciate your thought that it is legal (well, I don't appreciate it, I actually hate it...but you know what I mean...)
Metallisteve, yes, I agree with you, what DO your PMI payments prove to be for, if, in the long run, the PMI company can still sue you for the deficiency if you default? In my mind, you are essentially paying them twice for the same service. You pay them to protect the lender IF you default, and then you pay them again to protect the lender WHEN you default.
Also, I don't know if you know this, but as far as I can figure out, many PMI companies pay reinsurance companies to insure them to help protect them against possible losses.
So, additional questions I have in this scenario, are:
3. If a PMI company is insured by a reinsurance company, is it legal for them to sue a borrower for the deficiency balance?
4. And, how would the borrower even find out if the PMI company is insured by a reinsurance company?
Nice little rip-off, oops, I meant mess, isn't it?
Last edited by barndog; 07-16-2008 at 11:31 AM..
Reason: corrected typo
Wouldn't the best way to answer some of these questions intelligently be to be able to read the policy? For example there might be hidden in all the boiler plate lingo something that says"oh and BTW if you sell at...bla, bla, you will be sued later by xyz"
So how can we see the policy? This might be of interest to all those that have PMI and maybe prepare them for something they think there're covered for.
Here is something worth reading, even tho the question came from someone in Florida. It does explain a bit more . . . and seems worth reading (to me, anyway).
"PMI is ultimately for the benefit of the lender. It really isn't insurance for you. And the insurance company can look to you to make good if it suffers a loss."
Here is something worth reading, even tho the question came from someone in Florida. It does explain a bit more . . . and seems worth reading (to me, anyway).
"PMI is ultimately for the benefit of the lender. It really isn't insurance for you. And the insurance company can look to you to make good if it suffers a loss."
"PMI is ultimately for the benefit of the lender. It really isn't insurance for you. And the insurance company can look to you to make good if it suffers a loss" Ani, don't people know this already??? It scares me that there are homeowners who might not.
johne - i think what you're suggesting is one of two things: either read the mortgage note or read the agreement that you sign with your pmi company. if i am right about this, here is my response:
the note that this particular borrower signed is a standard note, there is no special language in it with regard to the pmi company being able to sue at any point in time.
and, you probably know this already, but a borrower typically doesn't sign (or even see) any kind of agreement with a pmi company. in many cases, a borrower doesn't even know what company they're actually paying pmi to.
so, actually, there IS nothing in any of the mortgage documents i've read that indicated that this borrower could be sued by a pmi company.
the civil suit papers indicate that the pmi company is able to pursue the lawsuit b/c they paid on a loss claim that was greater than the deficiency balance owed on the home after the foreclosure sale, which seems to me to be a technicality of law.
that's why i'm trying to find out if this is legal or if it is an arguable technicality.
(btw, i worked in consumer real estate at one of charlotte's big bank's writing training teaching banking center associates how to sell mortgages...you'd think if anybody would have encountered the answer to this question, i would have. but i haven't.)
"PMI is ultimately for the benefit of the lender. It really isn't insurance for you. And the insurance company can look to you to make good if it suffers a loss" Ani, don't people know this already??? It scares me that there are homeowners who might not.
Well, it is the way PMI is presented to the buyer. It is not explained as an insurance instrument that basically only insures the "top slice" of the mortgage.
I gotta be honest - the only reason I really understand PMI is b/c I got a two year real estate degree "back when." I was even able to get PMI removed off my house, after only making a 10% downpayment - at less than 3 years - b/c I had made sure my policy allowed me to have an appraisal performed at any point to prove appreciation. Most people would not know to do that and some insurance policies exclude that (may impose length of time to hold policy, may impose 25/75% rather than 20/80% value, etc).
I think most of us would perceive that PMI "covered us" against foreclosure the way "mortgage death benefit insurance" covered our parents. If a covered person died, the insurance company paid off the remaining loan.
PMI is an instrument that was developed to cover lenders in case of default. don't think buyers are told that; it is not explained as a way of indemnifying the lender rather than the buyer.
EDIT: I misspoke. I never saw a PMI "policy" per se. I asked my lender, in writing, b/f the closing, what their rules were for removing PMI. So now that I think about it - I never have seen any "policy" - I got my info straight from the lender.
Last edited by brokensky; 07-16-2008 at 12:44 PM..
Reason: edit to add info
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