Does PMI protect me from deficiency? If I have PMI and in the future end up losing my house to foreclosure, can the bank still come sue me for any deficiency? Isn't PMI insurance coverage in the event of a defaulted loan? Please clarify. If they can't sue you then is it safe to reaffirm a mortgage in a chapter 7 bankruptcy.
Although PMI insurance does insure the lender, I don't believe it insures you from liability. if a deficiency is allowed in your state (in many states, deficiencies are not allowed), I wouldn't rely on PMI to protect you from deficiency.
Hope this perspective helps!
Private Mortgage Insurance (PMI) is insurance that protects your lender against non-payment should you default on your loan and does nothing in that regard for you. PMI will not protect you from deficiency. As the buyer of this coverage, you're paying the premiums, so that your lender is protected. PMI mitigates the default risk that's associated with low down payment loans. Consequently, the only real benefit it confers is lowering the down payment requirement.
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Whether the bank can come after you for a deficiency depends on the laws of your State. I would seek the advice of an attorney licensed to practice in your area.
I can answer the PMI question for you. PMI insurance is not for your benefit. It is for the mortgage companies benefit. Unfortunately, you pay the bill. PMI is designed to make the mortgage company the beneficiary and you the bill payer. PMI cannot prevent deficiency.
When the loan goes into default, PMI may cover the note holder or named beneficiary of the policy (don't worry, it will never be you, unfortunately!). Whoever, has to pay the benefit of the insurance policy will inherit the right to come after you for the deficiency if a deficiency is allowed in your State.
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Under Georgia law, if the house is foreclosed and the sale is confirmed, the bank can seek a deficiency from you. Bankruptcy is the only way to get rid of that obligation, PMI will not prevent deficiency.
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