Insurer Can Sue for Unpaid Mortgage Debt

private mortgage insurance

The most important thing to learn before short selling a property or having the lender foreclose upon is whether or not the renouncing of the deficiency will happen. If the deficiency has been waived then you do not have to pay that debt. If the deficiency was not waived when your property was short sold or foreclosed upon and your loan had private mortgage insurance; then make preparations for a potential lawsuit.


A common misconception about private mortgage insurance is that it protects the borrower. Meanwhile, the reality of the situation is it does the opposite. Despite the fact that homeowners are the ones paying for private mortgage insurance (PMI) when a home goes into default it only protects the lender. The insurance protects the mortgage holder against acts of the property owner; such as allowing the property to fall into default or be foreclosed upon. The mortgage holder makes an insurance claim with the PMI company. The company has to pay the mortgage holder the amount that you defaulted. If the insurance company has to pay out, it will then likely turn back to the original homeowner. They will do this to attempt to collect the defaulted amount.

It is possible that the insurance company would accept a smaller settlement amount. But, the simplest way to avoid a pitfall such as this is to be sure that the lender has forgiven the unpaid mortgage debt. This is before agreeing to a short sale. If the lender is not willing to forgive the deficiency, you should consult a foreclosure defense lawyer. Do this in order to decide the best path to take.

If you have questions about foreclosure, loan modification, short sale, bankruptcy, or other alternatives, please feel free to call my office at 888-886-0020. Or, send an e-mail to, or complete the contact form below.