PMI Declined the Short Sale...What Now?

Foreclosures, Short Sales, Tax Foreclosures
1

Seller owes $506K on a house now worth about $240k. Got it under contract to a buyer for $240K. I submitted an offer at $208k, bank countered me to $225k, I accepted if they pay the 6% seller concession. I’m thinking this is a slam dunk, but the loss mit rep just emailed me saying the PMI company declined the short sale.

So as you can probably figure, the seller purchased at the height of the market and the values have crashed. Apparently he had mortgage insurance, and the lender filed a claim against the mortgage insurance, and the MI claim was denied.

My question is what now? The way I see it just because the MI company declined it doesn’t mean the bank itself won’t still short the thing anyway. Am I right, or is this dead? I’m hoping someone on here may have additional insight. What do I do now?

2

Hi,

Well the long and short of it is 4 or 5 years ago if a mortgage had insurance carried by the lender they would not even talk short sale as they foreclosed and negotiated a REO sale price and collected thier insurance check.

Since our financial crisis lenders have been pro-active and in contact with thier insurance carrier from the get go, probable what the PMI insurance company see’s is the original purchase price of the property and the original down payment and purchase money mortgage.

So $506k owed today may originally have been a $600k purchase with 10% down and an original $540k mortgage, the PMI insurance company is looking at the property as being (x)% of original value based on your states actual loss of value the last (x) number of months and years since the property was originally bought.

Now you indicate a current value of $240k but is that really reasonable for the home based on condition, location and size? Is this house on a large lot therefore increasing value? Is this home pretty new? Is it sitting on 2 lots?

Some of these issues may substancially increase value!

Have you really studied and broken down your comp’s by square foot, amenities and lot size? Are you missing something?

The fact the PMI insurance company did not indicate a counter offer to the lender indicates you are off much more than a $15k difference.

I am guessing your off more than 10% of your value estimate and there BPO, as they know it’s better to sell the property rather than sit on it.

But something tells me there thinking value is about 50% of the original purchase price or in my example half of $600k, if that is really what your states loss is right now.

Also, if you tipped your hat that your re-selling this property and this lender or PMI insurance company has a “No resale” rule, this could also be your down fall as some of these companies want to be ensured that we investors are not making a immediate profit at thier expense. (A lot of lenders now want your agreement you won’t re-sell within 90 days of your purchase)

I think my state and county actual loss right now is somewhere around 46%!

You can raise your offer fairly substancially and probable resume negotiations or just pass.

Good luck,

               GR
3

Hi Gold River,

Interesting information, and I thank you for your response.

My exit strategy is to simply write up the deal directly between the buyer and seller and charge a $6,500 negotiation fee on the HUD1. The bank rep informed me that this should not be a problem, but perhaps it is. Point is I won’t be reselling the property in this particular case. In addition, a realtor brought me the buyer so she’s getting 3% as well. This realtor ran comps and based on what she sent me $240,000 is almost smack dab in the middle of what similar homes have been selling for recently. These are prefabricated homes in a cookie-cutter type neighborhood, meaning all of the homes are very similar in design, appeal, and they were all built at the same time. House is in very good condition and needs no work.

I agree with you that since they did not counter me something must be way off with somebody’s numbers.

I guess the first thing I need to find out is exactly why PMI declined the short sale, and it I have to raise my offer so be it, the buyer will simply have to pay more for the house.

4

$6500.00 negotiating fee on the HUD!! Don’t count on that being accepted! You better think of a back up plan of how you are going to be paid, because I do not think that is going to be accepted…

5

Just found out what happened. They declined it because they figure the seller has the financial ability to cure the default. Why they’re just now figuring this out is beyond me. He makes a decent income but he doesn’t have any money… he has three other houses and all of them are upside down!

Any thoughts?