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Old 06-04-2009, 01:31 AM
 
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Let's say I purchase a home for $100,000 but can only put down $5,000. I have to pay PMI.

Let's say for whatever reason I can no longer afford the home and the bank agrees to a deed-in-lieu/short sale/foreclosure/etc... however now the house is only worth $80,000 and I still owe $95,000.

Can the bank still go after me for that $15,000 deficiency... or if they write off the loan will I be 1099'ed for it?

Will the insurance that I have been paying cover that $15,000 deficit? I would hope that the PMI company would make my bank "whole" and I would be in the clear.....

Secondary question: How much coverage does PMI offer.. up to 20%? more? less?

Thanks!
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Old 06-04-2009, 05:52 AM
 
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Did you read the agreement on the terms of PMI when you got your loan? Most people don't. The lender and PMI pretty much toss everything under the sun in those agreements. The PMI companies exist solely because the lenders conjured up the devils as a way to turn poorly secured loans into something more palatable to the investors. If the PMI company has language in their coverage that they or the lender can still come after the borrower in the event of default it is not like you can cross that out at closing.

I strongly encourage borrowers to not purchase homes that will require them to have PMI. The above reasons are things that even sharp real estate attorneyes have no defense against and even they cannot get lenders to rewrite contracts. While PMI is not a scam, neither is it something that 'protects' anyone other than the lender, and even that protection is highly questionable.
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Old 06-04-2009, 06:20 AM
 
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Or you could just pay the mortgage like you agreed to pay it, and it's a moot point.
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Old 06-04-2009, 08:27 AM
 
Location: South Dakota
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Mortgage insurers, depending upon the contract and state precedent, may be subrogated to the bank's deficiency interest and collect from you. In short, PMI does not necessarily mean no deficiency. If the insurer pays out, it may be able to collect what it paid from you. This is an area in which even seasoned real estate lawyers get befuddled, since it combines the disciplines of insurance and real estate mortgage law.
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Old 06-04-2009, 01:15 PM
 
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This was just a hypothetical post... it doesn't apply to me...so I'm not sure what the PMI documents might say.

My friend and I were discussing this over lunch yesterday and were trying to figure out how PMI works. Because unfortunately he is paying PMI on a house in Florida that is definitely under water

I thought that it would work like car insurance... in that I pay a monthly premium to Geico or Progressive...and I am covered for whatever my policy says I'm covered for in an accident.... and as long as the damages are within those limits.... I don't have to pay anything out of pocket (aside form the deductible)..

Of course my premium will probably go up the next year.... but I wasn't sure exactly how PMI worked.
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Old 06-04-2009, 02:08 PM
 
Location: Visitation between Wal-Mart & Home Depot
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Quote:
Originally Posted by volk2k View Post
This was just a hypothetical post... it doesn't apply to me...so I'm not sure what the PMI documents might say.

My friend and I were discussing this over lunch yesterday and were trying to figure out how PMI works. Because unfortunately he is paying PMI on a house in Florida that is definitely under water

I thought that it would work like car insurance... in that I pay a monthly premium to Geico or Progressive...and I am covered for whatever my policy says I'm covered for in an accident.... and as long as the damages are within those limits.... I don't have to pay anything out of pocket (aside form the deductible)..

Of course my premium will probably go up the next year.... but I wasn't sure exactly how PMI worked.
I think PMI is just a way to transform what is essentially a high-risk, marginally secured debt into a security with an attractive rating. Makes it look nice and safe to investment banks and money managers but really serves no purpose to you.
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Old 06-04-2009, 02:16 PM
 
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Quote:
Originally Posted by jimboburnsy View Post
I think PMI is just a way to transform what is essentially a high-risk, marginally secured debt into a security with an attractive rating. Makes it look nice and safe to investment banks and money managers but really serves no purpose to you.
So I'm beginning to learn!

Thanks for insights!
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Old 06-04-2009, 03:04 PM
 
Location: Richardson, TX
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If you foreclose or do a short sale, PMI pays the bank a percentage of their total claimable value - Loan balance, foreclosure expenses, etc - or they can decide to take the house and make the mortgage co whole, but they ain't gonna do that much in these times.

The mortgage company will most likely sell the house as quickly as possible after that, so they will have the claim $ from the MI company plus sales price minus commission from the house.

This could make the bank whole, but if the property is severely underwater, the bank can still lose tens of thousands of dollars.
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Old 06-04-2009, 04:10 PM
 
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Sounds like Debsi knows the "lender" side of the story too. As you look at these agreements it becomes clear that this "insurance" is not particularly valuable at all -- a handful a cases and the PMI company can cushion the loses to the lender, but anything wide spread at all and the PMI is a "wine cork" against complete collapse of the Hoover Dam...

What really cheese me off if that the people that agreed to these things from the lender and investor side ought to have used a wee bit of thinking and said "hmm, whole neighborhoods / developments have these sorts of loans, the PMI company is going to get burned just like property casualty insurer in an earthquake / hurricane, have we held these PMI companies to the same standard, well no, becuase they are practically 'fake companies' that we set up ourselves only to facility the securitization of loans...".

Yet another really bad idea.
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Old 06-04-2009, 05:38 PM
 
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Originally Posted by Debsi View Post
If you foreclose or do a short sale, PMI pays the bank a percentage of their total claimable value - Loan balance, foreclosure expenses, etc - or they can decide to take the house and make the mortgage co whole, but they ain't gonna do that much in these times.

The mortgage company will most likely sell the house as quickly as possible after that, so they will have the claim $ from the MI company plus sales price minus commission from the house.

This could make the bank whole, but if the property is severely underwater, the bank can still lose tens of thousands of dollars.
So Debsi, in the case that the bank is actually made whole by their PMI claim, I am assuming that they cannot come after the mortgagee for a deficiency.... I would think that that is double-dipping?

And if they didn't truly experience a loss because they were made whole, I don't think that it would be appropriate to report a loss and 1099 you either, no?

However, it's becoming clearer that the PMI company could come after you for the money spent.... but would a claim against you by the PMI company be considered a "deficiency"? Could you still be 1099'ed considering you didn't settle a loan for a lower amount with the PMI company specifically?

Again... all hypothetical questions... so feel free to throw in any other ideas or variables.. but I'd love to see what the possible outcomes could be.

Thanks!
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