How legal is it for the MI company to require a promissory note on a short sale?

December 5, 2008 3:11 PM

Is it legal for a Mortgage Insurance company (non-lien-holding) to require a promissory note of $20,000 in order to approve a short sale on a house?

House is in Florida, mortgage is for $240k, buyer offer is for $104k, Countrywide has approved the short sale and signed off on everything. Mortgage Insurance company is mucking things up and requiring us to sign a $20k promissory note in order for them to sign off. (If I had 20 grand, don't you think I'd be paying my mortgage?)

If Fannie Mae isn't filing claims on the MI companies these days (according to Countrywide and others), it seems to me that the MI companies are just lining their pockets. How is this legal? And on what grounds do I fight it?

posted by anonymous to Home & Garden (2 answers total)

They can require whatever they want to approve a short sale, since approval is at their discretion. You can't fight it. If they wanted you to do the chicken dance before they would approve the short sale, they could do that.
posted by Dee Xtrovert at 3:50 PM on December 5, 2008 [1 favorite]

Yes, it is legal. The MI company is on the hook for the loss (usually 15-20% of your loan balance, more for FHA/VA) regardless of what happens (I mention this for those who may not know, but I assume you did know). In the absence of a cancellation of the insurance, the MI company is still on the hook, even if Fannie Mae isn't presently claiming on it. Then again, you may simply have a MI underwriter who is unaware or doesn't care that Fannie Mae isn't going to hit up his company and is being a stickler for his company's rules.

You don't have to sign, and, according to The Google, several deals have gone through in the absence of a note, but several have also failed. Hopefully you have a good real estate agent on your side.
posted by fireoyster at 3:53 PM on December 5, 2008 [2 favorites]