Naples, FL Realtor,Don Breen recently was asked a question about mortgage insurance and shares his answer here.
“If I pay mortgage insurance and default on my loan, why wouldn’t that cover the deficiency amount? Max.”
on the short sale.
There are a couple of problems. Many mortgage insurance companies have gone bankrupt. They can’t pay on their claims.
In 60-75 percent of all short sales, you won’t owe a deficiency. The other problem is that many mortgage insurance companies have terms written into the mortgage that they can pursue you for the loss.
Here is my answer to Max’s question: Yes, the mortgage insurance should pay your lender for any loss. So that reduces the amount that your lender will lose They are more aggressive with trying to be repaid. In the few short sales we have negotiated and the lender asked for a promissory note, the person requesting it usually was the mortgage insurance company.
But, they only ask for a promissory note about half the time. In addition, the promissory notes are usually for an amount lower than the loss.
For example on one short sale, the loss was around $59,000. The seller agreed to a promissory note of $10,000 to be repaid over the next 10 years with zero interest. Their monthly payment was $83.33.
We won’t know if they will ask for a promissory note until the short sale is in progress. If you know you have mortgage insurance, then you need to find and aggressive short sale agent.
They will work to get an promissory note or deficiency waived.