Foreclosure in 60085>Question Details

Selene_51, Home Seller in 60085

If a deficiency judgement is pursued by the bank, IF PMI was paid throughout the loan( up until the late payments), is the PMI responsible to pay?

Asked by Selene_51, 60085 Wed Jul 7, 2010

I purchased my codo for $132K back in 2007. As of today 7 units that never sold are on the market for $65K less than my condo, and the first forclosure in my building (26 units, 16 are either for sale, foreclosed or in a short sale) to get an offer it was for $40,400. I stopped making payments because of my whopping student loan obligation ($120K), I am almost sure that eventually I will forclose on the property due to lack of income and also the discrepancy in the property prices. If the bank forecloses and decides to go after me through a dificiency judgment, is the private mortgage insurance that I have been paying for the last 3 years responsible? Or since I did stop paying the PMI in Feb does it automatically cancel the insurance? I'm not really sure how it works? Who pays if PMI is 'supposed' to be there if i default. HELP!??

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PMI does not cover the owner of the property. It only insures the lender for the portion of the loan that exceeded 80 percent of the value of the property on the date you obtained the loan. If you fail to make your payments or walk away from the loan and never pay it back or if you sell the home for less than the value of the mortgage, the lender has insurance on that portion of the loan.

When you failed to make your payments your lender probably filed a claim with the PMI company. The PMI company may pay off that claim with your lender and the lender may then sell the loan to a new lender.

That new lender then has the right to collect from you the full amount owed under the loan. In some cases, if the PMI company paid off the claim, the PMI company could come after you for the repayment of the amount paid to the first lender for the PMI claim.

There are some exceptions in which the homeowner might not have to pay the full amount of the loan back to the lender. One of these exceptions is when the borrower files bankruptcy and all or part of the loan debt is released. Every situation is different and I advise that you ask questions to all parties involved to get a complete understanding that is specific to your situation. I hope this helped. Good luck to you.
2 votes Thank Flag Link Thu Jul 8, 2010
Hi Martin-
Great Post! I saw that episode as well.
Maybe we should add a disclaimer here. News is ALWAYS sensationalized to get the readers or viewers to read or watch.

That being said, Stretegic Default is something the banks are fully aware of.
They have now changed up their processes, because of these types of transactions.

It is the "WHY" we are hearing that foreclosures are on hold, and now the sensational news about where the market is going has everyone panicking.

It is always easier to point the finger at someone else when we fall on hard times. Than it is to take credit or sometimes the blame for our own actions.

Think about it, the systems that have been put in place, have been placed there to help real people in real trouble. They were not created to help manipulate a bad situation and make it even worse.

If you are interested in knowing about the ramifications of Strategic Default, and many other processes out there for you to use, or if you have found yourself in trouble or behind in your mortgage payments. IN default of your first, second (PMI), third (Taxes) or Homeowners association, and aren't sure about what to do, please logon to either my website at: http://www.MadewithSchade.com

or Martin's Website at:

http://www.LakeCountyHomeMortgage.com

For a complimentary, confidential consultation... We are here to help you!
1 vote Thank Flag Link Mon Nov 22, 2010
As a mortgage professional, I have to concur with Lisa and the others on this. I saw a 60 Minutes segment a couple of months ago about homeowners doing what is called a strategic foreclosure. This is where they are perfectly capable of making the mortgage payment, but have lost so much equity that they decide to "cut their losses", and go rent for half of what they were paying to the mortgage company.

By the time their credit clears up enough to be able to buy again, they have banked so much money that they will have a sizable down payment for the next property.

This sounds great in theory, but who do you think is walking behind the elephant down the parade route with a shovel. Yes, it is all of your neighbors. We aren't even close to the end of the mortgage meltdown, full of legitimate cases where people that did everything right, and still are, or were unable to hang onto their homes.

I hope that you find a way to make this work,


Martin Sloan
Mortgage Loan Originator
Gateway Funding
847-946-5329
1 vote Thank Flag Link Mon Nov 22, 2010
First thing to understand is the the pmi is not insurance for you, it is insurance for the bank in case you default on the loan. The pmi compnay will pay a claim to the bank if you get foreclosed. The bank most likley will transfer the deficency rights over to the pmi company if you are forclosed on.

So the pmi company will not help you, you will look at other options.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee
http://www.milwaukeebailout.com
0 votes Thank Flag Link Mon Nov 22, 2010
Hi Selene-
I hate to be the bearer of bad news. but...

You signed the mortgage paperwork, so you are responsible to pay back that debt. You cannot just decide to stop paying because the rest of the homes in your neighborhood or development have lost value. The PMI that you have on the property is in case of your default, but not by a chosen default. That being said, your student loans are not a reason to stop paying on your mortgage. The banks would not consider this to be a viable reason to default on your loans unless there was some life altering situations; divorce, illness, lack of income due to layoff or some other type of situation other than choice.
The fact that your home is not worth what you paid for it is not a reason to stop paying the mortgage.

To answer your questions:
You will have potentially 4 loans associated with the home.
1.) The first mortgage
2.) The PMI or second mortgage
3.) Any homeowners association.
4.) Taxes

Each of these loans become what is known as liens on the property.
And when it comes to repayment or default thereof, they each take their rightful place.

Taxes take first, HOA takes second, First mortgage takes third and pmi or second mortgage take fourth and they all are placed against your credit if you choose not to repay the debts.


Short sale is an option, Deed in Lieu is an option, foreclosure is an option.

I would seek the advice of a good Foreclosure attorney and tax advisor.

If you are in need of a referral please feel free to contact me at (224)267-5472 or Lisa@MadewithSchade.com
0 votes Thank Flag Link Sun Nov 21, 2010
First, a semantic point, you don't foreclose on your own house the bank decides to foreclose or not to foreclose. You can decide to stop making payments and let the bank foreclose on the house, (inadvisable to "walk away"). You can try a short sale and it might buy you time while the bank is determining your eligibility for debt forgiveness. The discrepancy in home values has nothing to do with your ability to pay back the mortgage instrument that you signed. No mention if you called the bank to notify them of your plight or request a short sale package.

Waukegan has been hit very hard by the housing crisis and attempting to sell your home rather than not work with the bank. Get a real estate attorney that specializes in bankruptcy and short sale, call your bank and maybe you can forestall the foreclosure and live in your home longer at no additional expense.
0 votes Thank Flag Link Tue Oct 5, 2010
1) Check out this link:
http://www.irs.gov/individuals/article/0,,id=179414,00.html (you may have to copy and paste) it is information on the
Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act,

2)Try a short sale with a short sale experienced Real Estate agent, better than a Foreclosure for your future credit score. If you need a list of short sale agents let me know.
0 votes Thank Flag Link Thu Sep 30, 2010
Selene
The first thing to do is to contact the bank and request a short sale package. have a well written hardship letter describing your circumstances. Even so, the bank might not play ball since they have the PMI to cover the 20% gap between the mortgage and your sales price. I have heard that banks will let the house go to foreclosure rather than work with the owner. Find a good bankruptcy and short sale attorney, maybe you can do a deed in lieu of foreclosure. Last bit of bad news is that Illinois is a recourse state, meaning they can come after you for the defeciency, The cost of a lawyer is money well spent! get a good lawyer to help you minimize the damage. Walking away is not a good option, get the legal counsel and follow their advice!
0 votes Thank Flag Link Thu Sep 30, 2010
The PMI is to insure the mortgage company if you default. However, if you default, the mortgage company will assign its rights to the deficency against you to the PMI company after recieving the claim payment from the PMI company. So bottom line if you default and there are deficency rights either the mortgagor company or the pmi company will be trying to collect.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

http://www.milwaukeebailout.com
0 votes Thank Flag Link Fri Jul 9, 2010
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