Short Sales Question

Hi everyone,

I’m “new” in real estate investing … although I have previously bought a 4-plex and three other houses. The 4-plex and one house I owned were sold a long time ago. I currently still own two houses. I acquired all my properties the tradition way by saving my money for a substantial downpayment or selling my previous residence, then buy another through a real estate agents.

I always had access to the internet, but I never used it on real estates other than checking MLS. Recently, I have an itch to buy another property, so I decided this time to search the web to find out what others are doing to acquire real estate. I happened to stumble into this website.

I found a lots of resources in this website, and there are so much to learn. I was reading about “short sales” when I came up with a question I couldn’t figure out:

If an owner have hardly any equity in a property. Wouldn’t that person has to buy PMI when they took out a loan to buy the property in the first place? Therefore, the lenders has insurance in case of default (top 20%). Why would any lender sell a property short if they can foreclose and claim insurance? Wouldn’t PMI cover most or all sales shortages?

Thanks in advance for answers to my question!