IndyMac & PMI Short Sale Fiasco

We've been working on a short sale for a townhome in Elkridge, Maryland.  The home is in a nice neighborhood and was purchased at the height of the market, right before the mortgage meltdown in 2007, for $375K. 

The people who bought the home are a lovely couple with2 small children; he is a military veteran and she is a social worker.  Like many families, they are so busy and admit they didn't have a good grasp on their finances and didn't realize when he got out of the military, their take home pay would be a lot different.  In any event, they were put into a mortgage that they couldn't afford from the beginning. 

Very long story short, they were unable to afford the home from the beginning and were living off of credit cards because the mortgage was over 50% of their income.  They declared bankruptcy in July 2008 based on the advice of an attorney. After their other debts were wiped out, they were still unable to afford the $3300/month mortgage and were discussing a loan modification with Indymac.  These people loved their home, it was the first home they ever purchased and they wanted to keep it.

They began paying a modified amount and after a couple months, Indymac came back and said they were sorry but because the couple declared bankruptcy and did not reaffirm the loan, they were unable to modify the loan.  You see what happens with a bankruptcy and a mortgage is if you do not reaffirm the loan after the bankruptcy, you are no longer responsible to pay it.  The loan (same thing as with a car loan) has been settled, but with a mortgage or a car loan, they are backed by collateral so if you don't make the payments, you cannot keep the collateral.  If you continue to make the payments as they were, then you're fine and can stay in the house, but if you need modification, you need to either reaffirm the loan during the bankruptcy or reopen the bankruptcy and reafirm it.  This entire process was so stressful for the family and the rep from Indymac suggested they do a short sale; at this point that was a good option, so they called and asked us to try tofind a buyer for their house.

We had the home on the market for $299K and had 66 showings before getting an offer.  That tells me that we were priced in a good range.  The offer was decent considering the current market so we submitted it to Indymac back in January.  We have waited patiently through the process, the buyers have been extremely patient.  After many weeks, the BPO has come back and we're close enough that our negotiator said they could probaby work with the offer.  Then she discovered the loan has PMI, mortgage insurance.  When a loan has PMI, the insurance company covers the difference between what the bank is able to get out of the home verses what is owed.  In order to qualify for the insurance, the bank has to cooperate with the rules of the PMI company.

PMI came back and demanded the sellers take back a promissory note for $20,000.  They said it was originally going to be higher, but due to the circumstances, they would make it only $20,000.  Now the problem is, remember these people already declared bankruptcy and the bankruptcy judge ruled that they are not responsible for the mortgage any more.  They are still trying to do the right thing for moral reasons, to keep another foreclosure from hitting the neighborhood, have kept their association dues paid, and have kept the power on in the home to help keep up the condition of the property.  They did move out recently because they needed to find a home in the same area so their children wouldn't have to switch schools and a home came available - they were worried the house could go into foreclosure and they wouldn't be able to find a home when they needed to.  But as far as their credit goes, the mortgage is already showing as being included in the bankruptcy.  They do not want to take on any more debt at this point because they feel like they have been cooperative with the whole process and they are no longer in the home.

PMI came back and denied the short sale based on the sellers not taking back a promissory note.  Our negotiator at that point became rude and uncooperative.  I wrote a long letter to the agent at PMI asking them to reconsider and he did call me.  We spoke about the situation and he said the sellers did not have a "HARDSHIP".  We explained that they were put into a loan they couldn't afford from the beginning (they admit it was a huge mistake) and told him about the other bills, the bankruptcy, the fact that their payment was over 1/2 of their income, etc. If the bank ends up foreclosing on this home, it will sit vacant and uncared for over a period of months and many things can happen to homes once the power goes off in a warm, humid climate.  We have seen countless of foreclosed homes where mold has begun to grow within weeks and has caused tens of thousands of dollars in damage to the home.  By that point you can only have a cash or conventional buyer which further limits your buyer pool and lowers the price.  

PMI's standpoint is they still have the same jobs that they had when they applied for the loan and PMI does not feel that they have a "HARDSHIP".  I told him the bank would lose more money if they have to foreclose on the property and he said PMI does not care; the difference to them is negligible.  I asked if the potential buyer could come up on their offer to make up the differece and he said no, it would't make any difference to PMI, it would only make the loss to Indymac less.

PMI did call the sellers directly to discuss the situation with them two weeks ago and was supposed to call me with either the same decision (no) or a revised decision, but they have not.  I have called and the seller has and we have had no updated response.  Our old negotiator at Indymac has changed departments so I got the information for the new negotiator and am going to try to call her again today to see if we have any updates.

We have contacted Senator Sarbane's office and they said they can file a complaint with Indymac, but I'm not sure where that will go.

It really seems like we have our hands tied as PMI is calling the shots.  It's a shame to have yet another foreclosure and have Indymac lose even more money because of "policies" that are being adhered to. 

Does anyone have any suggestions or ideas as far as how to proceed? I have a feeling this one is going to foreclose.  Very sad.

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