I recently  closed a short sale that involved private mortgage insurance that was taken out by the lender without the borrower's (my client) knowledge.  The problem was that we did not know how the existence of PMI would affect the negotiations and we did not know what the terms of the PMI policy were since my client was not the insured and the PMI company would not give us any information.  The lender gave us conflicting information telling us one day that there was no policy limit and that the PMI would pay for any deficiency and then later telling us  that there was a policy limit after all and the lender would still suffer a loss.  Why did all this matter? Well, it's difficult to negotiate meaningfully when you have a constantly moving target and a third party (PMI) that does not release information, but is one of the major decision makers (i.e., the lender would not even start its evaluation until PMI approved the short sale).  I talked to a lot of other short sale agents and none of them ever experienced a short sale with PMI.  In the end, we were able to negotiate with the PMI company and get a satisfactory solution followed by an approval of the short sale by the lender.  However, because of all the delays, we lost our first buyer who got tired of waiting for a decision from the lender.  The second offer was $20,000 lower than the first offer and the seller had to come up with $15,000 to close escrow (her mother gave her a loan).  Even after all of this, the lender could not tell us whether there would still be a 1099 issued because they said they would not know until they received their money from the PMI and of course the lender could not submit a claim to PMI until they received the proceeds from the sale. 

We closed escrow on Friday, June 13th!  I received a phone message from the negotiator this past Friday (a week after closing) asking me to call him at my earliest convenience.  I did not get the message until Saturday (for some reason it did not come through on my cell phone until over a day later).    I'll be curious to hear what he needs from me a week after closing.  I am trying to think positive, but based on my experience with him, I can't help but feel a knot in my stomach.  I have never had a negotiator contact me after the closing.  Will it ever end?

What did I learn from this?  Always ask right away whether there is PMI.  Each short sale has it's own challenges and you have to be prepared of anything.