Q: First of all, I would like to tell you how much I enjoy reading your column. I learned a lot about real estate and the mortgage process through this. We refinanced our home loan with a new lender and closed last March. On our 2011 annual tax statement, I noticed that the amount paid for PMI was $0. Knowing that we have PMI on our loan, I called the lender and they informed me that they would investigate and get back to me, which they never did. I called a few days later and they admitted it was a mistake on their part and they were still working to resolve it. In the meantime, I went through my monthly statements and noticed that the PMI payments had never been deducted from our escrow account since the loan was established. This, of course, caused an overage in our account of over $2,800.
Almost two weeks later, I received an escrow analysis statement from the lender stating that the excess $2,800 was to be deducted from my account as a prepayment. I called the lender again and they informed me that the $2,800 had to be paid to the PMI company to reinstate our policy. It turns out that the policy was not processed properly at our loan closing, so it was never finalized with the PMI company. I thought it was a little strange having to pay back premiums on coverage that didn’t exist to begin with, so I asked the lender if there was a way to know that those funds would actually go to the company PMI and would not end up in anyone. pocket and was told there was no way for me to know because PMI companies only deal with lenders.
I contacted PMI and was told that the last payments they received were from my previous lender in February 2011 when my policy was canceled and I do not have a current policy with them. They verified that my current lender had just requested reinstatement of my policy and confirmed that the lender had to pay the $2800 to “catch me up” and it was completely legitimate. When I asked why a payment had to be made on a policy that did not exist, they ended the conversation saying, “You will need to contact your lender with any further questions.” When I asked the same question to my lender, he told me that my policy was not canceled but simply inactive and needed to be paid up to date to reinstate it.
I know private mortgage insurance is for the benefit of the lender, but since it comes out of my pocket, shouldn’t I have a right to know if it’s being paid for properly and not ending up in someone’s pocket? anyone else? Have you ever heard of anyone else having this problem and if so, is it standard practice for mortgage insurance companies to request refunds before the policy can be reinstated?
A: Private Mortgage Insurance (PMI) is something that millions of homeowners have and aren’t even aware of.
While there are many variations on the theme, the purpose of PMI is to insure your mortgage company against losses it would incur if you failed to repay your mortgage.
Do you remember the AIG rescue plan? This was largely because AIG was insuring the mortgages that went bad and the company was going bankrupt trying to pay the insured banks’ claims.
Lucky for them, but not for us taxpayers, they were just too big to fail. But that’s for someone else’s column.
When you signed your loan closing documents, you agreed to make insurance payments on behalf of the bank. Whether or not there was loan coverage was, believe it or not, none of your business.
This process is really no different than the title insurance policy you also purchased for the bank. You may not know this, but you probably paid around $1,000 for your title company to provide an insurance policy to the bank that guaranteed your home’s title status. However, it also offers you, the owner, a lot of protection.
The constant confusion with PMI is that it appears that you, the borrower, are the client of the PMI company. You are not. You just pay the bill. And that’s where the confusion is.
Whether the title policy was ever required by the bank is a matter for the bank and the title company.
Think of it this way: if you walk away from your home and your mortgage, and the bank forecloses, they could end up losing $100,000. If they go for insurance on that amount and the insurance policy is somehow invalid, it doesn’t affect you in any way.
Just to be clear, if you left your mortgage and your mortgage company and were responsible for any loss, it doesn’t matter if the insurance was paid or not.
If the insurance has been paid, the insurance company will sue you. Otherwise, the bank reserves the right to sue.
From everything you’ve told me, the bank has every right to take the money out of your impounded account and what they do with it is pretty much their business. You should sleep better at night without worrying about whether the insurance policy is in force or not. May the CEO of the bank lose sleep over this.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like answered in this column, you can email [email protected].