Charlotte Ma…, Real Estate Pro in Nashua, NH

Why is a bank allowed to let a short sale go to foreclosure due to PMI?

Asked by Charlotte Marrocco-Mohler, Nashua, NH Mon Mar 5, 2012

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Short Sale M…, Other Pro, MA,
Mon Mar 5, 2012
Did you offer the MI company more money? We’ve had success with that. Negotiate Negotiate.

If the servicer approves a short sale that is not approved by the MI company then that servicer will have to pay the MI company. So as a result the bank always concedes to what the MI company wants. MI will negotiate, however the servicer/investor of the note does make the final decision if they will approve the short sale.

When a homeowner has less than 20% for a downpayment the loan requires MI. Private mortgage insurance protects the lenders against losses if the homeowner defaults. They collect a monthly premium from the borrower (based on risk analysis) and agree to pay the lender a certain amount of money if the loan defaults.
If a homeowner defaults the lender sends in a claim to the insurance company to recover a certain % of the mortgage balance. This, in turn, gives the lender a smaller risk when the lender sells the property to recover their losses.

So let’s say you have a $280,000 loan for a property that was purchased a few years back for $317,000. The value could have easily dropped since they bought it in 2004.

If you’re concerned about MI you need to ask how much will the lender receive from the insurance company if the borrower defaults?

$280,000 X .20= $56,000 (roughly the 20% that the original loan was that the homeowner didn’t have for down payment)
What price must the lender sell for to not have a loss?

Well, the lender's exposure has been limited to $224,000 now that they received $56,000 from the mortgage insurance company. We take $224,000 divided by 85% (remember that it costs approx 15% to sell so the 85% represents THE NET). $224,000/.85= $263,529.

Knowing this information up front helps you understand a rough amount that you need to obtain so the LENDER NET is met and you have a successful short sale.

I ALWAYS tell homeowners who have MI to understand they need to possibly contribute to the sale of the home in some manner. Make sure the buyer is willing to up their offer for the house and negotiate negotiate….OR you could let us do it for you ;)

Maryann Little, VP Mitigation
AA Premier Properties, LLC - NH
Short Sale Mitigation, LLC - MA
@rapidshortsales (TWITTER)
Third Party Negotation Services
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Guy Gimenez, Agent, Austin, TX
Mon Mar 5, 2012
The home doesn't go into foreclosure "due to PMI," the bank forecloses "because" of PMI. It allows the lender to be made whole and the insurance company takes the loss, which is the purpose of requiring PMI.
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Scott Godzyk, Agent, Manchester, NH
Sat Mar 10, 2012
Charlotte the PMI company has to approve the short sale, not the bank. The PMI company can choose to pay the loss and allow the short sale or can foreclose, pay the bank and then try and recoup their money by selling the asset. If they are refusing the short sale the price is lower than their allowed percentage off of the current market value. The buyer would need to pay closer to the market value. Most banks and pmi companies will counter these days though, not just deny it. Check with the negotiator to see what they will take. I have had great success with PMI companies in getting my short sales approved through daily communications.
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