Q: A couple years ago I lost my job and went into foreclosure. My lender took a private mortgage insurance (PMI) claim for the missed payments. The lender then sold my mortgage to another lender. When I was contacted by the new lender, we worked out a forbearance agreement so that I was able to keep my home (still requiring me to pay the $14,000 that was paid via the PMI claim).

I am wondering why I needed to pay back the $14,000 to the new lender when the prior lender received it through a PMI claim. Should this amount have been removed from my mortgage? Should I seek legal counsel to get restitution from the original lender since this money was, in reality, paid twice?

A: We have received this question quite often lately as mortgage problems have increased. Many people are affected by the current downturn in the real estate market and many borrowers have had difficulty paying their loan payments.

When you purchase a property and obtain a loan for that purchase and that loan exceeds 80 percent of the value of the purchase, the lender will require you to pay for private mortgage insurance (“PMI”). PMI is only for the benefit of the lender.

PMI does not cover the owner of the property. It only insures the lender for the portion of the loan that exceeded 80 percent of the value of the property on the date you obtained the loan. If you fail to make your payments or walk away from the loan and never pay it back or if you sell the home for less than the value of the mortgage, the lender has insurance on that portion of the loan.

When you failed to make your payments with your first lender, that lender filed a claim with the PMI company. The PMI company may have paid off that claim with the first lender and the lender then sold the loan to a new lender.

That new lender has the right to collect from you the full amount owed under the loan. In some cases, if the PMI company paid off the claim, the PMI company could come after you for the repayment of the amount paid to the first lender for the PMI claim.

Now that the loan has been sold off to the second lender, you still have the obligation to pay whatever debt is owed to that lender under the forbearance agreement.

Exceptions to Repaying the Mortgage Loan
There are some exceptions in which the homeowner might not have to pay the full amount of the loan back to the lender. One of these exceptions is when the lender and borrower no longer has the duty to repay the full amount, when the borrower files bankruptcy and all or part of the loan debt is released or in some states where the lender can only go after the property and can’t go after the borrower for a deficiency judgment.

In another scenario, if you had not been able to repay the loan and the lender had foreclosed, or if you had sold the home for less than the amount owed under the loan — commonly known as a “short sale” — and the lender agreed to accept that short amount as full payment for the debt and agreed not to go after you for the shortage, the lender would not be able to go after you for the additional money.

If those limited situations don’t apply to you, keep in mind that in many states the lender can still go after you to get the repayment of any amount owed under the mortgage loan. And if the PMI company paid a claim to the lender, the PMI company can come after you for the amount paid out on the claim.

However, you shouldn’t end up paying “twice.” Rather, your obligation is to pay back the lender an amount equal to the amount you borrowed, less the principal you paid off over time plus any fees and costs that you might owe the lender as a result of your non-payment under the loan.

For more details on what you owe, please talk to your lender and a real estate attorney.