A common mortgage lender practice that could leave you up the river

Considering a short sale? Have more than two mortgages? You may be in for prolonged frustration and heartbreak.

Many lenders, especially second mortgage lenders, take out mortgage insurance. In the case a borrower defaults on his or her mortgage, lenders can collect from a mortgage insurance pool. Mortgage insurance is taken out to minimize risk, and many homeowners are entirely unaware that their lending institution has taken out an insurance policy on their mortgage.

Caution Up Ahead

The problem is compounded when a borrower’s lending institution sells their mortgage to another lending institution. That institution may take out mortgage insurance, leaving the borrower completely in the dark.

Short sale homes begin at a disadvantage to foreclosed homes, in that potential buyers can often get a better deal and complete the transaction quicker on a foreclosed home. Potential short sale buyers must have time and patience to spend. Many potential buyers walk away from short sales angry and upset because a lender failed to disclose that the mortgage was insured until the end, and the mortgage insurer decides the terms of the short sale deal are insufficient.

Borrowers involved in or entering into a short sale could find themselves without a short sale deal because the mortgage insurer refuses to sign off. They may also have to foot the ‘insurance bill’ in order to complete the short sale transaction. Lending institutions aren’t required to make borrowers aware of mortgage insurance taken out on their loans. Contact your lender to find out if your mortgage is insured. This will save you heartbreak and a buyer at the end of a short sale deal.