YOU ASK:

Can the mortgage insurance company (PMI) get a deficiency judgment against me for foreclosing my house?

WE ANSWER:

Even when you foreclose on your house because you are unable to continue with the payments or are declared bankrupt, the mortgage insurance company may still try to go after you by initiating a deficiency judgment.

Even if the mortgage is covered by insurance, this does not mean that you can simply get away with not paying your mortgage and foreclosing on the loan. What will happen is that the mortgage insurance company or the lender will also try to recover some of what they paid by filing a deficiency judgment.

This usually happens when you have no equity on the property. Even when the property is foreclosed and sold, it is likely that the proceeds of the foreclosure sale are not enough to pay the balance in full. Hence, the deficiency, which represents the remaining balance.

The lender can either pursue the amount and initiate legal means for you to pay the deficiency, or it can also cancel the debt and report it as such to the IRS. If you have non-exempt assets that can be used to pay for the deficiency, the bank will try to go after these. Exempt assets usually include the person's homestead, IRA, 401 K Plan and automobiles.

They will also file a claim with the mortgage insurance company so that the rest of the loan is paid.

When the mortgage insurance company pays for the balance, the company will be the one to go after your remaining non-exempt assets in a process called subrogation.

However, there may be difficulties involved when deficiency judgments are initiated. It may be hard to try to collect money from people who are out of a job and who do not have assets. It may also be that when the owner is rendered homeless because of the foreclosure, there may be no forwarding address so that the legal documents can be served.

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