Not sure why your not getting attorney advice.. you should be.
And you need to look at if from the lender or PMI insurance companies point of view. They are taking the loss.. You signed up for. What you negotiate with your lender or in this case the PMI company is your business, but paying less than 10% 0n your dept not a bad business exchange.
Get a lawyer,
Hi. You really need to ask your Realtor. No one here in this public forum has read your purchase contract or is aware of the property and situation.
Your Realtor and / or short sale negotiator are the ones talking to your lender on the house you are selling. They are best to know what the bank's reasoning is.
May I wish you the best.
Also the bank is going to give me a 1099 for probably $100,000. Why if they are getting money from PMI?
Stan, you need to make sure you have a good negotiator working on your behalf. Put it to them this way -- they can either accept $X and go away quietly. OR...if they insist on the $10K, then you're likely going to have to foreclose on it, and then they get ZERO! I've used this strategy with HOA's and when they realize it's better to get something (even if it's only $1,000) rather than nothing, they usually agree to it.