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A Realtor's Guide to "PMI & Short Sales"

N.B.- This post is an excellent starting point but gets better as the reader scrolls through the comments. I was fortunate enough to draw the attention of my friend Bill Archambault , long-time lender and Realtor. He clarifies a few fine points and offers an opinion about negotiating short sales.

PMI is known as the acronym for private mortgage insurance. Private Mortgage Insurance is used when a borrower has less than 20% for a downpayment. Private mortgage insurance protects mortgage lenders against potential losses in the event of borrower default. The insurance company, collects a monthly premium from the borrower (based on risk analysis) and agrees to pay the lender a certain amount of money if the loan defaults (usually 20% of the loan amount). It's model was based on FHA loans and their mortgage insurance premium (called MIP, probably to confuse you). FHA and VA offer guarantees to the lender equal to as much as 25% of the mortgage balance.

If a borrower defaults on his conventional mortgage (goes 90 days late on a payment), the lender files the state-specific foreclosure notice and sends in a claim to the insurance company to recover as much as 20% of the mortgage balance. This, in turn, gives the lender a smaller risk when the lender sells the property to recover their losses.

Let's assume we have a $300,000 loan for a property that was purchased last year for $317,000. Could that property have dropped in value since October of 2005 ? Well, if it was a condo in my hometown, San Diego, it may be selling for as little as $260,000 today. Assume it costs about 8% to sell the property. You, the Realtor, should know two things:

How much will the lender receive from the insurance company if the borrower defaults?

$300,000 times .20= $60,000

What price must the lender sell for to not have a loss?

Well, the lender's exposure has been limited to $240,000 now that they received $60,000 from the mortgage insurance company. We take $240,000 divided by 92% (remember that it costs 8% to sell so the 92% represents the net proceeeds). $240,000/.92= $260,900.

Why is this so important to you, the professional Realtor? When negotiating an offer for a property that would result in a short payoff to a lender, you need to remember this fact: PMI claims will mitigate some of that loss. If you know that a seller has PMI on their mortgage, you have that much more wiggle room when negotiating a short sale with the lender. Lenders have been known to attack Realtors' commissions as much as 50% when a short sale exists.

Knowing your numbers and how PMI affects a lender will help you defend your commission. If you understand the net effect the sale will have on a lender, your short sales will go much more smoothly.

Posted by Brian Brady- America's VA Home Loan Broker on 11/17/2006 10:57 PM

Comments (63)

pmi, short sales, realtors guide, realtor, mortgage

Originally posted at: America's #1 Mortgage Broker: A Realtor's Guide to "PMI & Short Sales"

63 Comments on A Realtor's Guide to "PMI & Short Sales"

NOV

2006

Brian,

:) I knew that since I was a mortgage broker for some years, but maybe some realtors do not know the guide, great blog

Ray Saenz

NOV

2006

I appreciate this info as I'm going into negotiation on my first short sale and feel like I'm totally in the dark. Thank goodness for mentors!

Likewise Brian, I am at the end of negotiating my first short sale, and all that is left is the haggling over commission. We listed for 6% (Sellers stopped paying mortgage but we did not know until about 4 wweks ago) bank wants to give 5%.

They will probably win, because we are ready to close next week, another agency brought the buyer to the table.

Bank is recouping a little more than their principal, but is whining about losong their $1850 prepayment penalty.

The home was refied last year after a year of ownership. the rate was 9.7% AND THE SELLERS TOOK OUT 20,000 WHICH THEY SPENT ON TV AND CARS. NOW THEY ARE SPARATED AND DIVORCING

Sellers have Zip to bring to table.

Bonnie & Ginger:

There is a way to protect that commission if the borrower has another home. Offer the let the bank to take a 2nd (or third) lien position on the newly purchased home if they agree to not pursue a deficiency judgement. The borrower will still owe the money but will save his credit rating. Your willingness to protectthe bank's interest should count for something in your negotiation.

I've done that twice this year for clients.

Hi Brian,

Can I take issue? Respectfully!

Private Mortgage Insurance (PMI) is referred to as "Mortgage Insurance" or MI on lines 902 and 1002 on the "Good Faith Estimate" and HUD-1.

Except for those documents common practice is that when you use the term "MI" you are referring to FHA insured loans although it is correct to say "MI" when "PMI" would be more descriptive. FHA insurance is never referred to as "PMI" since it is not "private" being a government program.

"PMI" is not always 20% it is available in several amounts as demanded by the lender. The buyer has no choice about the amount of coverage the lender demands, but he does have options as to how it is paid. "PMI" is available form several insurance companies and can normally be paid for as a lump sum in addition to the most common instalment method. Regardless of method of payment the insurance premium will vary depending upon the original Loan To Value, "LTV" when the loan was originated, Prices are available for 100%, 97%, 95%, 90%, and 85% loans there is no break in the rate if you don't reduce the loan amount to the next lower LTV. FHA insurance charges both an up front and a monthly insurance premium.

Personally, I don't ever recall seeing a 20% insurance requirement. I believe that 17% is the most common "PMI", which reduces the lenders exposure to 78.85% of the original purchase price (the lesser of purchase price or appraisal). For example a $100,000.00 purchase with a 95%" LTV" loan of $95,000.00 would require "PMI" of 17% of the loan amount $16,150.00 of insurance for the lender, which leaves the lender with $78,850.00 at risk.

"VA" is a guaranteed loan, your Uncle Sam guarantees to pay the lender, they will pay the equivalent of a down payment reducing the banks risk, but only if the borrower defaults. VA guarantees are always a specified dollar amount not a percentage of the loan. The VA charges a "funding fee" that appears on line 905 of the "Good Faith" and HUD-1, it varies depending on weather or not the veteran has used the guarantee before.

I believe that with today's higher dollar amounts we're going to see the "PMI" companies stepping up to protect their interest and we may not be able to discount the purchases price by the amount of the "PME" as we once might have. Short sales have to make sense and in a falling market the lenders have a major incentive to deal, but with the tremendous increase in NOD's I don't think the insurance companies are just going to pay and walk, if there is much real equity left.

My position on short sales is it never hurts to ask! But, I believe to be successful you're going to have to show the lender and indeed the "PMI" company why it's in their best interest.

If I were representing the seller that needed a short sale I'd be very carful about letting anyone low ball the lender, because you could offend the lender and you could run out of time to save yourself.

Personally, I've never had a lot of luck with short sales on FHA or VA properties until the FHA or VA was in title. I have had good luck getting these lenders to waive late charges and NOD fees, even some accrued interest, and pre-payment.

If the bank is taking a loss they are going to try to spread the pain and will trie to limit commissions, and espicialy any money going to the seller!

Short Sales are a pet peeve of mine all to many Gurus are out there preaching that the lenders are anxious to give you their money, I don't believe it. Buyers can get great deals involving short sales as long as the lender believes it's in their best interest. I worry about real estate agents thinking that short sales are a sellers tool, that's going to put money in the sellers pocket. I wonder why they think the banks are so benevolent that they will give you back the equity you lost in a falling market.

Any how you do have four great pragraphs at the end and 200 points.

For give me,

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Brian,

Our sellers have no other home. I am pulling out all the guns to fight, but the realty is we have buyer under contract and the bank knows they have the upper hand here. And their policy guidelines say 5 never 6 % commission.

I still gave it the old college try. Makes me feel better. Should know by Monday at the latest.

PMI insurance is kind of a rare breed in my market even though most homes are heavily financed. In Poinciana Fl the 80/20 seems to be the mortgage vehicle of choice/necessity. Of course the 1st mortgage is still protected. It's the 2nd lien holder that takes the beating.

BB:

You are right on target about the 80/20 and the Poinciana market. This is where I want to change that with FannieMae's MCM and my S.H.A.R.E. Program....one loan at a time! The fact that it is a Fannie Neighbors Community helps as well.

Bill:

I appeciate your editorial advice and factual corrections. I agree that coverage is for specific figures and that .17 is generally the norm. I think I might have been a bit lazy by not explaining the different coverages and "rounding up"

I didn't want to get too technical considering it's a beginning course for Realtors; I want to keep plain language in it and simple concepts. I think my sloth may have doled out specifically incorrect info.

I think I'll edit it tomorrow night with more precise coverage figures. The term "PMI" is incorrect in our jargon; I puposefully used it because it's the preferred term for my audience.

Make no mistake about it, I solicit your "issues" and will always defer to your years of experience in both lending and education. Thank you very much for the editorial advice.

Brian

Bill makes some excellent, factual points.

Bill makes a more important editorial one:

Short sales are not a "negotiating tool" to "skip on the debt". In fact, the short sale negotiations I perform for Realtors and their clients always start with the premise that the borrower owes the bank the money and will have to pay said money back to the bank. My negotiation technique is to offer the lender additional collateral and to try to avoid the expensive and credit-dinging hassle of a deficiency judgement. I've been able to preserve borrowers' credit and Realtors commissions by adhering to the specific principle that the borrower MUST pay the money back according to the note, regardless of the collateral sale.

Brian,

Be carful of what you defer to, much of what I preach is simply my point of view. I define myself in the glossary of my books as the worlds greatest expert on my opinions, That's a limited subject. On other subjects I just hope I'm at least well informed.

It's important to mention my point of view, because with one huge exception all my experience with "short sales" had me representing or coaching a new buyer. Everything I have been involved with has resulted in the owner/seller "sifting" the lender. In these cases the seller's credit was already trashed, but I like to think that we helped them. A short sale or "settled for less than the full balance" is infinitely more desirable on a credit report than an "NOD" or God forbid a deficiency balance.

That's not to say that we haven't use a substitution of collateral to better a clients position, from time to time, but I've never thought of that as a "short sale." I like your approach to win-win in working out the sellers problem.

As to jargon, I like the term "PMI" my only concern that when we use "MI" that many assume we're talking about an "FHA" loan.

As you've said we disagree only on the minute points. I often think I'm just nit-picking. The problem is that out side of the small loan group as you called us, there is a lot of misunderstanding, even among people who think of themselves as mortgage professionals. I can only hope our banter adds to their understanding.

I recently saw a blog, I think here on AR, that advocated® the REALTOR® approaching the lender about a short sale at the time he list the property. I can't imagine where such bad advice comes from. Never ask a lender about a short sale without a written offer in hand.

Bill

Bill Archambault - I love what you state, "The World's greatest expert on my opinions." That is HILARIOUS!

Gentlemen, thank you for your respectful exchange here. This is the way that healthy interaction should occur here on AR.

Brian, please continue to keep it simple for us. That is one of the true values of your posts - explaining complicated and technical issues in plain laymens terms. Thank you!

I hate to say this and it pains me, but , Thank you. Just another thing to add to my list of ideas for short sales.

Fantastic info Brian! Thanks for sharing.

There must be a lot of interest in short sales. I received a sales call from someone in CA last week offering to sell me lists of home owners who were in default. He suggested that I could contact these sellers and try to arrange a "short sale" for them. I politely declined. I can think of a lot of better ideas to sell real estate than to start with listings of sellers in default. Maybe when I was new and hungry and ingorant.

Good information. I'll keep all of it in mind the next time we have a contract on a home and then find out that the seller is in foreclosure.

"Scott aka Bull"

Guy goes to the gates of heaven where he meets St. Peter. St. Peter says to him "God has looked at your book of life and you are welcome in heaven under one condition" The man say "What's that?" St. Peter says "You must spell the word 'Love'." So he does and he is let in to heaven. As he gets in, St. Peter's beeper goes off. He tells the man to watch the gate until he returns, and reminds him that he must ask whoever comes to spell the word. Next thing you know, his wife shows up at the gate and he asks her what she is doing there?She says that on the way home from the funeral, there was an accident and she died. The husband says alright, but you do have to spell one word first before you come in to heaven. She asks "What's that?" He says "Spell Czechoslovakia"...

TLW "The Lovely Wife"...I Told You I Was Going To Do That...ROAR!

This has been a great blog. I should have know this, but I thought that PMI or even an FHA insured mortgage was fully insured, not just partially insured.....

So, how does the FHA mortgage work? Buyer is in default, lender takes back property, then gives to HUD. Does HUD pay the lender the full amount of what buyer owes? Or do they get their money back from HUD after HUD sells the property? Or is it just a percentage??

I always thought that the lender would get whatever they have in property out of it by HUD, HUD takes over property, then sells and tries to recoup some of their loss form the FHA insurance paid out.??

Thank you professors Brian and Bill. Even though I am aware of what both of you have written about, it is always helpful to me to see how someone else would explain PMI/MI in a way that can be easily understood by others not in the business. Between the two of you, you have done a great job in accomplishing this, and I have learned a new approach on how to present it.

Your humble student thanks you.

This is a great point. I did not know that. This could come in handy in the future. Thank you.

LOL @ TLW

Brian, I have one neighborhood here with 600 + homes for sale right now; when I investigated, it is because so many are in foreclosure; according to mortgage peeps here, it's because ARMS came due and people can't pay now. These people should have sought short sale help while there was still time; your educational post was very helpful to me, ty

Both FHA and VA "guarantees" for a percentage of the loan amount. It's been 3-4 years since I funded govvies so I am giving you information I believe to be correct. I'm hoping that Bill comes back on here to verify or amend my statement.

I think that the guarantor (FHA or VA) advances 25% of the balance to the lender, then manages the disposal of the collateral and offers the balance of the loan amount (75%) from the proceeds of the sale.

Bill? Can you help me here?

Let me highlight what Bill said earlier:

Actively prospecting with the idea of a "short sale to the lender" is not good practice. Actively prospecting and saying that you have resorces to help you witha short sale, in the event of a lower accepted price, is what you should do.

If you pursue this market you must understand that your client gets your full fiduciary attention BUT the lienholder(s) are definitely stakholders in the transaction. The Realtor that takes a "hard-line approach" may do his client an injustice. REO departments at banks are made up of people. These people have bosses who report to shareholders.

The Realtor who develops a reputation as a savvy negotiator who offers responsible solutions for seller and lienholder will be rewarded.

I will absolutely help anyone negotiate a short sale (for a fee) should you need it. Clients need to understand that their is NO FREE RIDE here; they do owe the debt to the lender. If you understand that basic premise, you can really add value.

Bill's most important comment was that a Realtor should NEVER negotiate a short sale without a valid offer in hand.

And Bill? There is no such thing as nit-picking when it comes to this stuff. Precision counts. I always appreciate your experiences when it comes to "fine tuning" my posts.

good stuff people!

Lets start with what I know then move on to what I think,

FHA is an insurance program just like those in the private sector. The insurance is a percentage of the loan amount and conditioned on the LTV.

VA is a guarantee, it's a small difference but it has major implications in the event of a default. The guarantee is for a specific dollar amount refereed to as the veterans entitlement. The lender must be protected to at least 25% of the purchase price. The lender will normally take a veterans entire entitlement no matter what the loan size, a savvy vet should negociate this to only the minimum, I have never done this. The entitlement can be reused if paid, or the vet can use the remaining entitlement latter. The current entitlement is $60,000.00 (this can be less based upon prior use and when the vet served) which means a vet with the full entitlement can purchase up to a $240,000.00 house with no money down. The dollar down VA loan is an advertising myth you're only required to put a dollar down if it's written into your O & A. (Check my numbers its been awhile since I did a VA loan.)

The VA is a major bureaucracy, but they really do want to put vet's in homes.

Now for what I think, you need to know I loath the FHA and until recently I gave away those few clients that wouldn't be better off with a conventional loan. I've only done a few FHA single family loans over the years, but if you want to talk about FHA 221d4 multiple family loans that's a different matter, I've even been a fee consultant for the FHA, but that was over twenty years ago.

When the FHA forecloses on a property they let the lender keep the property if just paying the insurance is going to cost less than paying off the lender and taking title to the property and selling it. I believe but don't know that FHA gets most of their foreclosures back. FHA repos use to be great deals but that time is long past! I would not let one of my clients or students buy one. FHA loans are insured as such I've never heard of a deficiency judgement against an honest home/loser.

I believe the VA behaves the same as the FHA when it comes to weather they take the property or simply pay the lender. VA repos are easer to deal with than FHA, but do your client a favor and find a less complicated deal. The big difference with VA is the fact that Uncle Sam will come after you for any deficiency balance! It's said that they will even force early retirement on you and seize your Social Security benefits, again I must remind you I've never actually seen this.

Despite everything I support the VA they are very good for the vets. FHA and HUD on the other hand have done nothing but hurt the public over the last 40 years, the sooner they are disbanded the better. Have you got a really bad neighborhood or apartment project in your community? It's likely that it's financed by FHA and run by a local bureaucracy.

Bill

Note to Carole Cohen,

What an opportunity! I'd be on my computer checking the recorders office if I were you! If one lender holds several of those 600 hundred homes they're ripe for a short sale. If you can come up with an investor I'd suggest you buy not for the properties but for the notes, bought at a large discount before the owners are forced out your investor would get all the benefits of a short sale with the buyer already in the property. Think of the good you could do the homeowners, the community and your investor! To be a long term career REALTOR® you need to think outside of the box. Just remember CYA!

Like my friend Brian, I also consult for a fee.

Well, As always, I appreciate his expertise.

Understand that short selling a government loan may require an approval of the respective agency. That my friends, is NEVER going to be an expedient approval.

Thank you for the clarifications, Bill.

Remember folks, you can get help if you need it.

NOV

2006

Thank you Brian, that was lot of good information.

I haven't had to face short sales thanks to a strong local market. We all know they will be coming.

Thanks for the great info Brian as usual. Unfortunatley I have the worst luck with short sales. I try to stay far away from them now.

JAN

2007

Am Realtor, have done short sales with varying degrees of success. The following is a new situation for me.

Have been approached by a seller who took out 125% mortgage because, well, it was easy. Overly high Re-Fi ppraisal was $124,000 so he borrowed 125% of that, now owes almost $160,000 on this house. BUT... house is really only worth $105,900 to $109,900.

This seller has good income, and is paying all his bills right now, even though it is painful. He is paying $1700 a month for a house worth $900 a month. He now realizes the error of his ways and regrets the decisions he has made. This seller is not yet late on anything, but hears the train coming..... Wants out of mortgages so can rebuild financial life on better footing. Wants to sell for what he can get, pay off the first mortgage holder. Is willing to pay the remaining balance of second mortage, by making payments on time.

The second mortgage is theoretically secured by real estate, but not actually since the property is not worth what he owes...

What are chances second mtg holder will release lein if seller guarantees to continues making payments?

What are alternative workouts instead of saying... you are trapped in this house?

Lonn:

You've worked through this very well:

1- The second lien is secured by the property. It is undercollateralized but secured nonetheless.

2- The chances would be good that the second lien holder would accept a short sale with a contract. My thoughts are that your buyer proactively offer another piece of real estate as collateral to avoid a deficiency judgement. If he's willing to make the scheduled payments, he should have no problems.

Please call if I can help you

MAR

2007

Lots of good info here but a bit overwhelming at first. Sounds like a lot of potential here for the future. Not sure if its worthit after listening to a few of the comments. Good food for thought. What kind of fees are you guys talking about?

MAY

2007

Bill:

Are you saying that it is not a good idea to ask the lender if they would agree to a short sale or are you saying it is not a good idea to contact the lender and ask for short sale requirements on this seller's loans? Because one is different from the other. The first is pointless but the last one is something that you need as the realtor to give to the seller so that they are prepared with the proper documentation when that offer comes in. All paperwork has to be sent at the time you present the offer, so if you don't get it at the beginning when do you ask for it? Please clarify.

pertaining the following statement made by Bill:

www.motheranddaughterrealty.com

Rosemary,

I'm all in favor of short sales! I did my first in 1973. I've done short sales from a few hundred dollars, some considerably less that a hundred dollars although most wouldn't have though of them as such. The biggest short sale I negotiate was buying a $8,500,000.00 note for $500,000.00, that one was fun because I also saved them over $3,000,000.0 in taxes, their accountant had missed. I tell you this so that you'll understand, I believe in short sales, I do short sales, and I straighten out the messes others cause!

I posted a sales blog Woodyatake? That you should review.

What I don't believe in is the listing REALTOR® asking the bank woodyatake a short sale, with out presenting an offer!

I'm not going to rewrite Woodyatake? here. There is no quicker way to complicate a sale than to start by provoking a "NO" from the person or worse a committee you're selling to. And, you do have to sell the idea to the lender.

Every lender will accept a short sale when it's in their best intrust. But, when they have said "NO!" we don't do short sales, it gets very difficult for a Selling REALTOR® to come in and say "I have a client ready to pay $355,500.00, here is the offer, when can we close?"

No one should ever ask Woodyatake if you believe it's in there best interest assume they will and present the offer! What to present with the offer will depend upon the lender. Make your original presentation show why it's in the lenders best interest to accept your offer.

I'm in favor of asking the lender what they want to see with a short sale offer only if it's a generic question. If you can ask with out reference to a specific property do so but never ask about a specific property.

Since Brian's original post and Woodyatake?

I've come to believe that many of us are confusing the term "short sale" with selling an REO, real estate owned, a bank owned foreclosure for less than what they have into it! If you represent the bank and list there REO of course you'll ask if they'll take less, you owe them the same level of service as any other listing, you wouldn't have a problem asking me if I'd take less so ask the bank. Bank listings are not short sales.

When a bank accepts a short sale it settles the account at a loss, so as not to have a bigger loss. When a bank sells an REO for less than their cost, depending on the type of loan and the state you're in there can be a deficiency balance that the previous borrower is still liable for!

While we're on the subject, Brian and I exchanged comments some time ago about settlings some of these situations by substituting collateral. Many sellers today face long sale times and want the bank to take a short sale for the sellers convince, that's not likely to be accepted, because it's not in the banks best interest. But, there is always more than one way! Banks may well consider a substitution of collateral! Times are changing, for real estate people to succeed they are going to have to know all the options.

If I haven't answered your question or Brian doesn't straighten us out ask again.

Bill

I think Bill says for you to be certain you have a bonafide offer before you present to the bank.

Yup! Brian's right, and 541 words breifer. The show off!

Bill

MAY

2007

I was handed a short sale referral like it was easy, however I have never done one, would like to do this one, but do not want to mess it up to the point where i end my reputation before i get it! I've been in the bizness for six months only so I am a lil new at this gig...any first NONO's?????

Chicainvest:

Get the full story on what is going on with the property - get mortgage stubs, letters received and really listen to the seller tell you the story. Get a signed authorization letter from buyer and make sure you include social security number and any phone numbers that they can provide, loan # too.

Write a letter requesting information, send it with the letter of authorization to the migitation (usually is the department that handles default/foreclosure) get a name and valid fax number first. Fax it

Wait at least 48 hours for them to log it and then do your follow up call to them to be sure they received the fax and let them know you are the agent representing your client and you need payoff balance up to whenever and you need them to fax you a list of their short sale procedures. Give them nothing more at this time!

List the house right, market it agressively and get a bonefied offer BEFORE you send it off to the bank. (Make sure you have qualified the buyer and that the offer makes sense). Make sure you have a hardship letter and all the information they ask for along with the signed purchase agreement.

Oh call title right after you list and ask to open a pre-sale escrow so that they will send you a preliminary report. Review that report to see just what you are up against as far as outstanding loans and liens, plus property taxes due.

Hope this helps. Do this and read the other comments and you should OK.

Brian, thanks for reviving this blog. Hot subject.

Rosemary

JUL

2007

Brian, I came back to this blog because I wanted to use the formula information. Read all the comments again and found some new information. I would now suggest going on the website first of the lender to see if they have posted information on what they require for a short sale, if yes, or if there is another way to get that information so you will know what to send them when you get the offer, that would make more sense than asking them for short sale information. At least some of the lenders might get an attitude or too much heads up with you writing in and asking for that information. So thanks is in order again.

JAN

2008

Brian - terrific article. Somehow I missed this many months ago - glad to see that Bryant referred to it in his on-going series on short sales.

Jeff

JAN

2008

We have a short sale situation and the bank has told us (we had 3 offers immediately) that it will be a long while...

MAR

2008

Recently Wells Fargo rejected a short sale offer from a buyer (I represent the seller) my loss mitigator stated they would have been able to submit for approval however, becuase of the PMI the PMI insurer is requiring Wells to sell at a certain dollar amount. How is PMI dictating the offer Wells Fargo accepts/declines?

MAR

2008

Jenne: I have exactly the same situation - a good offer rejected by Well Fargo because the PMI insurer is insisting on a dollar amount! Hopefully someone can answer your question!

You can both call me with the specifics at 858-777-9751

MAR

2008

Very interesting article since I am writing my first offer on a short sale tomorrow. Thank you for the blog!

MAR

2008

Excellent Tip thanks a bunch

MAY

2008

What about reverse mortgages? When the owner dies and the family attempts to sell the home and payoff the reverse mortgage, is the lender more or less likely to accept a short sale because the loan is non recourse and insured?

JUN

2008

I have done two short sales and am negotiating another now. After this one I am done. I refuse to show or list another. It isn't worth the trouble and aggravation. I will refer them to another agent.

JUL

2008

Is anyone familar with using forced mediation as a tool to gain leverage in a short sale situation?

JUL

2008

I have made an offer on a short sale and it was accepted by the lender. I have now been advised by my attorney that the deal is at an impasse because the PMI company does not accept the offer. Can this happen? What are the chances or options that I now have to move forward with this purchase?

Thanks.

Mario - NJ

I have never heard of this situation before. The MI usually would cover first loss and the bank would then be able to move ahead with the short sale. This is an interesting situation.

AUG

2008

If the borrower is making PMI payments to cover the lender up to an agreed amount, in case of default, how can he be held liable by PMI for any difference if default occurs? That's what he was paying insurance for...And how can the PMI company frustrate the sale if the lender already agrees to it...Something is wrong with this picture...

AUG

2008

We are facing a similar situation here where United Guaranty Residential Insurance is trying to hold us hostage for a $55,000 promissory note on a $175,000 short sale. Weren't they one of the guilty parties whose professional appraisers claimed the value was much higher? ($300,000 in this case) Any thoughts?

SEP

2008

Iam working on a short sale the property was appraised for 687.000, but they owe 830,000 I have a offer for 699.000. But the PMI company wants the sellers to sign a 75,000 promissory note. Any Ideas!

Have the sellers sign a promissory note, Coni; they're getting a $50,000 break off their original debt

NOV

2008

How can the PMI company demand money from you? Can you write off what they collect from you? Will the bank reduce the amount on the 1099 by the amount that you agree to pay the PMI company?

DEC

I am in the middle of a short sale currently where the seller overpaid for a property 2 years ago. He owes $98k and comps now are saying it is only worth around $53k. I have a good cash offer on the table for the property, everything seemed to be going good until the lienholder informed me the seller has UGIC pmi on the loan. They then tell me this has screwed up other short sales at closing as UGIC will require the seller to sign a promissary note at the closing table. Who on here has encountered this problem? Is there any way around having him sign a promissary note, because I don't think the seller will be willing as his credit is toast already. How can a pmi company go after the seller? This doesn't make sense to me. For example: If I'm in a car accident and make a claim my auto insurance won't come back and tell me I owe them for the amount of the claim, if they would what would be the point of even having auto insurance in the first place? Is anyone following me here? Everyone on here seems to be very knowledgable, any info will help...thanks

DEC

I think someone should read the Mortgag Insurance contracts.

Is there a clause in the contract that covers short sales?

Or does the insurance only cover defaults and sales due to foreclosure?

Ultimately, the bank may have to foreclose, then resell the property. I assume they can only make a claim on the mortgage insurance after the property is sold by the bank. In a short sale, the bank also has the option to negotiate a settlement with the mortgage insurance company. If the deal makes sense, then bank may determine that it would be less expensive to settle for a smaller amount with the mortgage insurance company, and both allow the short sale to go through.

I've never done this, but it seems like a reasonable solution. The insurance company pays out less, and the bank doesn't incur the cost of foreclosing and reselling the property.

DEC

Here's my short sale tale...

I found the house, liked it, decided to put an offer, then realized it was a short sale. It came on the market at $210k, worked it's way down to $180, then $160, then $140, I put an offer of $120K. That was 2 months ago. I've been told through my agent that the selling agent says it's good to go, and the bank has accepted my offer, just waiting for final approval from the PMI department at the lienholding bank. If this actually flies, what a tremendous deal for me. Any thoughts or ideas from anyone?

MAR

I agree that short sales are a great tool for struggling homeowners, it helps the homeowner who is burdened by a legitimate hardship, and the banks net more money than a lengthy foreclosure. I have been working short sales in California and have had great success. If any one would like help please feel free to contact me: Oliver@thelajollateam.com

Also Check out: http://www.ShortSale2020.com

JUN

My seller was asked to agree to a $25,000 promissory note payable at $123.00 per month for a term of 204 months (17 years) in order for an approval on her short sale.

My question is why would my client agree to this obligation in lieu of walking away and allowing the home to go to foreclosure? How will this be reported on her credit report for 17 years? Does she have any further negotiations available to her in order to facilitate the short sale?

Diane Wheatley, SoCal

JUL

Great tips! I didn't know this information. I will definitely apply it to my next short sale opportunity

OCT

I need help to understand this better. I understand the PMI element. I have a short sale I am presently dealing with. The lender or servicing company is staing that they are waiting for the pmi company to approve, deny or counter the offer that has been submitted.

Why is the pmi company a part of this negotiation? I understand that they may be working together so as to make sure no money is wasted between them. But usually the banks have not worked or played well with others.

Can you shed some light on this for me? You can email me directly as well.

Stefan Jezycki in the Napa Valley, CA

OCT

We received an approval of short sale on Sept 3, 2009. No mention of PMI. Now we are closing tomorrow and upon review by negotiator, suddenly PMI is noticed and sent the information. The come back requesting $25,000 promissary note payable at 0% int for 7 years at about 296 per month.

We were to close tomorrow!! Buyer has movers planned, Seller has taken day off work, and Wham! We are hit with this killer info that totally blows us out of the water! Unbelievable!

Did the Negotiator miss it? Whoever is responsible, does not matter. Probably will not close and Seller will not pay a dime to PMI. CMG is PMI company. I realize we can surely negotiate down, but Seller will not pay a dime at this point. She says "let if forelose"!!! I am done!

Any suggestions???

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