First, the PMI company may not be your friend in finding a solution. If the current loan can be salvaged by the PMI company counseling the borrower to enter Chapter 13 bankruptcy, the company will do so. That is good for the borrower, the lender, the servicer, and the PMI company, but bad for you.
Not everyone is a Chapter 13 candidate, however. In addition, many Chapter 13 bankruptcies are converted to Chapter 7 liquidations, where the property proceeds to foreclosure. Bankruptcy may only delay the inevitable, while adding to the lender’s attorney’s fees and other expenses.
Aside from that consideration, remember that for many loans the PMI company will bear the ultimate loss of a foreclosure. Say you want to buy a preforeclosure property worth $120,000 but with an outstanding loan balance of $119,000. The lender might be willing to write the loan down to $96,000 and allow assumption with no money down. In the alternative, the lending company might be willing to accept $96,000 as payment in full for the loan. However, the lender must check with the PMI company first because the PMI company will probably have to write the lender a check for the difference between the value of your offer and the outstanding balance on the loan.
You have those same considerations if you are buying property that has already been foreclosed. The PMI company takes into account the lender’s foreclosure bid price, plus the ultimate sales price of the home. Naturally, the PMI company wants the sales price to be as high as possible.
Although PMI companies can and do request permission from servicers to negotiate workouts, they do not always have that opportunity. You will usually be negotiating with the servicer, even though the PMI company and the presence of its insurance is a very important consideration.
We never like to trust someone else to do my negotiating for me. If the person we are talking to must persuade someone else of the wisdom of our plan, we put all my arguments in writing. That way, the person with whom we are talking can simply copy my writing and transmit it to the third-party decision-maker.
If you follow the same strategy, especially when it is likely the loan has PMI coverage, you will meet with greater success in your negotiations.