mortgage insurance

[Tallard]

If I buy a house for say $100,000 and get a $95,000 mortgage on it the mortgage provider is likely to make me take out a mortgage protection policy in his name to protect his interests. If I then sell the house for say $90,000 and there is still say $94,000 left to pay on the mortgage there will be insufficient funds available to cover the mortgage by $4,000. If I am unable to pay the $4,000 myself the mortgage provider can claim the outstanding amount from the mortgage insurer. My question is can the mortgage insurer then pursue me for the $4,000 he has had to pay out to the mortgage provider?

 

[I AM ALWAYS LIABLE]

<BLOCKQUOTE><font size="1" face="Arial, Helvetica, Verdana">quote:</font><HR>Originally posted by Tallard:
If I buy a house for say $100,000 and get a $95,000 mortgage on it the mortgage provider is likely to make me take out a mortgage protection policy in his name to protect his interests. If I then sell the house for say $90,000 and there is still say $94,000 left to pay on the mortgage there will be insufficient funds available to cover the mortgage by $4,000. If I am unable to pay the $4,000 myself the mortgage provider can claim the outstanding amount from the mortgage insurer. My question is can the mortgage insurer then pursue me for the $4,000 he has had to pay out to the mortgage provider?<HR></BLOCKQUOTE>

My response:

Created so that people can buy homes without having to first amass large amounts of cash, PMI is a strange kind of animal. Mortgage lenders force homebuyers to take out PMI if the buyers put less than 20 percent down when they take out the mortgage.

* * * It protects the lender against losses if a homeowner defaults on the mortgage. * * *

Selling your property for less than the outstanding mortgage is a "default" on that amount not realized by a re-sale; i.e., $4,000.00. The insurer would pay that deficit to the lender, and the insurer would, in fact, come after you for that amount. Otherwise, if people knew they could sell a house at a loss with impunity, they would be walking away from mortgages en mass, or not caring how much their house sold for if it was a bad market.

IAAL


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[Tallard]

Thanks for your swift response. Could you tell me by what mechanism the insurer is able to pursue the defaulter for the money in circumstances such as this? Does the fact that the defaulter effectively paid the insurance premium in the first place complicate this at all? After all the defaulter is really being asked to recompense the insurer for a claim on a policy that the defaulter paid for ie he is being asked to pay twice!

 

[I AM ALWAYS LIABLE]

<BLOCKQUOTE><font size="1" face="Arial, Helvetica, Verdana">quote:</font><HR>Originally posted by Tallard:
Thanks for your swift response. Could you tell me by what mechanism the insurer is able to pursue the defaulter for the money in circumstances such as this? Does the fact that the defaulter effectively paid the insurance premium in the first place complicate this at all? After all the defaulter is really being asked to recompense the insurer for a claim on a policy that the defaulter paid for ie he is being asked to pay twice!<HR></BLOCKQUOTE>

My response:

There you go. By your questions, I can see that the "light bulb" has come on, and now you're beginning to understand. The "mechanism" would be a lawsuit, judgment and then attaching wages or property. All because you paid the premiums, that does not mean anything to the insurance company. That's why I wrote "* * * It protects the lender against losses if a homeowner defaults on the mortgage * * *." Other than being able to buy the home, there are no other benefits that innur to you. The only reason why you got the house in the first place, is because you agreed to pay the premiums to pay the insurance company who, in turn, would pay the lender in the event of any form of default, on any amount. The lender didn't want the house; you wanted the house. That's why the lender made it a part of the "deal" for YOU to pay the premiums, and not the lender to pay. The lender doesn't want that financial burden. The insurance company doesn't care who pays the premiums, only that they get their premium money. Now, the insurance company will come after you for making them have to pay the lender. That's why people who have such insurance, do not just "skip town." They're gonna get caught someday, somewhere.

Good luck to you.

IAAL

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By reading the “Response” to your question or comment, you agree that: The opinions expressed herein by "I AM ALWAYS LIABLE" are designed to provide educational information only and are not intended to, nor do they, offer legal advice. Opinions expressed to you in this site are not intended to, nor does it, create an attorney-client relationship, nor does it constitute legal advice to any person reviewing such information. No electronic communication with "I AM ALWAYS LIABLE," on its own, will generate an attorney-client relationship, nor will it be considered an attorney-client privileged communication. You further agree that you will obtain your own attorney's advice and counsel for your questions responded to herein by "I AM ALWAYS LIABLE."



[This message has been edited by I AM ALWAYS LIABLE (edited April 10, 2000).]