A couple living in New England are facing another battle after losing their home to foreclosure. Their mortgage insurance company is suing them for $136,000.
The Galindo’s came to the U.S. to build a better life for themselves and their toddler daughter. They worked hard and bought a two-family house in 2005 for $410,000. They didn’t have the money saved to make a large down payment so their lender required they buy an insurance policy in order to qualify for the mortgage. The Galindo’s didn’t think much about the policy until they eventually lost their home to foreclosure due to a forced reduction in working hours and their one tenant stopped paying his rent. They thought the insurance policy would protect them but the policy only protected the lender.
Private mortgage insurance (PMI) was set up to help people who were considered a risk to mortgage lenders if the borrowers defaulted. Typically, the borrower was required to buy the insurance if they didn’t make a down payment of 20% or more. The insurance policy normally costs the borrower between $30 and $70 per $100,000. The policy pays the lender for losses if the borrower defaults on the loan.
In the Galindo’s case, they owed $389,500 on the home that sold at auction for just $101,500. The insurance helped recover the mortgage deficiency and was paid to the lender. The deficiency (shortage) was $136,000. Legally, the insurers can go after the borrowers to recover their payouts to the lender. The lenders begin with letters and threatening phone calls, followed by lawsuits, wage garnishment and even arrest warrants. The $136,000 the Galindo’s owed has ballooned to $169,000 with attorney and court fees.
These insurance companies are going after borrowers throughout our nation, from Florida to California. Borrowers who are in post-foreclosure and trying to rebuild their lives are being forced into bankruptcy, having their wages garnished and their cars seized.
The insurance companies maintain they have a legal right to seek restitution from the borrowers. Consumer and housing advocates say it’s unjust to pursue victims of the epic housing market crash, especially on homes that lost 30% or more of their value (underwater).
In 2013 alone, there were 977,000 borrowers who had to buy this insurance to qualify for a mortgage. Nationwide, there are hundreds of thousands of borrowers who are at risk at being sued for post-foreclosure deficiencies. Analysts are calling this the “Foreclosure Echo” – damaging effects of the housing crash and the people who are trying to recover from the financial fallout of foreclosure. In the Galindo’s state, attorneys for the insurance companies filed 150 lawsuits for deficiencies and obtained court orders for debts adding up to $9 million.
For more information on Gantenbein Law Firm or Foreclosure Defense, please visit our website.