Private Mortgage Insurance and Deficiency Judgements

When you carry private mortgage insurance and go through foreclosure, do you have the potential to get hit with a deficiency judgement? Private mortgage insurers have the right to file deficiency judgments. And they do where it is legal and the situation warrants.

Mountain Get-awayA deficiency judgment is an unsecured money judgment against a borrower whose foreclosure sale did not produce enough funds to cover the mortgage in full. In situations where private mortgage insurance is in place, the insurance company will pay the lender the difference between what the house fetched on the market and what the borrower owed on his mortgage. And then, if the insurer thinks it can get its money back from the borrower, it will try to do so.

However, not all states allow deficiency judgments. In Washington, Deficiency judgments are allowed in judicial foreclosure proceedings, but not if nonjudicial foreclosure is pursued. Thus, when a deed of trust forecloses through nonjudicial means, then there is no deficiency judgement.

You say you have no interest in a short sale, but in those situations, mortgage insurers don’t usually go after borrowers because a short sale is a negotiated settlement. A foreclosure or walk-away such as you are considering is not negotiated, and, as one insurer told me flat out, “we reserve the right to pursue deficiency judgments, and we do in states where they are permitted if the borrower is still gainfully employed and has the resources.”

About A. Harrington

Specializing in short sales, new construction and residential resales in Snohomish, King and Pierce County.
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