I was sent a video from Fox News in which Bob Massi was interviewed about Mortgage Insurance. Watch Video Here. Watch the video first for the rest to make sense.
Here is the issue. They are discussing concept of Subrogation. That is the right of the mortgage insurance carrier to step into the shoes of the Lender after paying the loss claim and assert what rights the lender has or had against the borrower to recover the amount paid. Now, that is all great but we need to understand the relationship of the parties. The Lender is the named insured party, the borrower is not. So the Lender is the First Party. The homeowner, who has actually been making the insurance payment in most cases, is the Third Party. Under the common law principal of subrogation there should be no reason why an MI company cannot pursue the borrower.
Now, let’s apply it to Arizona, where I work as Director of the Mortgage Mediation Group and handle short sale and deficiency liability issues. Under Arizona Revised Statutes, specifically ARS 33-814(g), a Lender is precluded from securing a deficiency on a single one to two family dwelling of 2.5 acres or less that is limited to and which is utilized as a single one to two family dwelling. Without spending the next two pages discussing what this means is simply that most MI covered first conventional mortgages on one to two family homes in Arizona are protected from any deficiency after a foreclosure (trustee sale).
If the MI policy allows the MI company to step into the shoes of the Lender, the MI company will start driving the bus. Now, if you are doing a short sale and negotiating with the lender, that lender is going to inform the parties that MI must approve the sale. Next comes the classic Greenmail tactic. The MI company makes a demand for a cash contribution. Everyone starts jumping ship. Here is the problem. In most cases, there is no legal right for the MI company to make the demand. If they are going to subrogate, they should already have paid the claim. Here they have not. In order for the MI company to have a valid claim for that money, the lender would have to have had that right. They do not. This brings us to a Third Party Bad Faith Claims. Too many times we here that that short sale collapses or worse the borrower agrees to a promissory note to the MI company.
If you or you know someone that is contemplating or is in a short sale right now and an MI company is engaged in this tactic, contact our office immediately. There are proper responses to these demands that an attorney can deliver will save you, clients or friends from this evil deed.
“Remember, if you are or know someone that is facing a point today or in the near future where the home is no longer affordable or it no longer makes sense to keep paying and the home is underwater, please call us to learn what legal obligations and rights exist before the home is short sold, foreclosed or walked away from.”
Great coverage of a confusing matter… was recently told that United Guaranty rejected a HAFA due to the seller having an investment property. That doesnt seem to be fair if the 1st lien position approved HAFA. The fight goes on and our firm is digging in to this so if you have anything to share it seems Washington and Arizona have similiar laws.
Bill, my question would be “Is United Guaranty acting as MI to the deal or are they acting as Due Diligence?” We have lenders outsourcing loss mitigation work to MI companies who acted as underwriters on these loans. Having said that. I have had a pretty deep study of HAFA. Frankly, do not recall any ability or authority of a third party to override a HAFA approval. Might the HAFA approval been premature? Possibly. Can a lender retract a HAFA approval, yes. It seems clear from your description of the facts that the lender is acting in bad faith.