Foreclosure with mortgage insurance

Submitted by skip mcclannahan from TN - 10/11/2011 - 5:54pm

Seeking to purchase a recent foreclosed home- home owner went through bankruptcy. He has mortgage insurance, at least on the first, . First lender is gmac. How does this play out? Who would I contact about buying the home? Does the insurer pay off the first lender, and they ten have the home. How does this effect the 2nd lender?

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Submitted by Michelle - 10/13/2011 - 2:43pm

Hi Skip,
The mortgage insurance benefits the lender (beneficiary). They would need to file a claim with the MI company for any losses.
If the property goes back to the bank they would then have the right to sell the property. This usually means assigning it to an agent, cleaning the place up and listing the property for sale.
In a foreclosure the 2nd is wiped out. They would have needed to foreclose on the property to protect their interest. In this case, because the homeowner has filed BK the debt is also discharged and the 2nd has no recourse for collection. Being in second position has risks which is why you pay more for a 2nd mortgage than a first.

Submitted by skip mcclannahan - 10/13/2011 - 5:06pm

Thank you, How would a person know how much the mortgage insurance would pay , and if they did reimburse the bank then that amount would be subtracted from the amount the owner would owe?

Submitted by Michelle - 10/13/2011 - 5:44pm

Hi Skip,
It is an insurance "claim" so there is no way to tell. The homeowner filed BK so it really would not matter to them and it would not affect the buyer of a property because the lender is still going to sell it for current market value.

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