Unexpected Private Mortgage Insurance Billed After Closing
Ask the Real Estate Lawyer: Real Estate Law Q&A
REM # LAW 629
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A reader unexpectedly receives a payment coupon
for a new mortgage that includes PMI. At the time of closing, no PMI had been
included. Sam and Ilyce recommend thoroughly reviewing the mortgage agreement
before signing any documents.
Q: I have enjoyed your column for some time now, and have a question I hope
you can answer.
We refinanced our home recently and closed without any problems. A few weeks
later, we were sent a payment coupon, and the payment included private mortgage
(article continues below useful links)
There was nothing in any paperwork at the closing, and we questioned our attorney
about not having PMI. We thought there might be PMI on the loan, but our appraisal
came in higher than expected, so we assumed that the PMI had been eliminated.
Our attorney looked over the documents and confirmed that there was no PMI attached
to the loan and there was no documentation included that had information on
any PMI payments.
We have now questioned our lender and their response was that there was a minor
error on their part. They told us to sign and return some paperwork agreeing
to the PMI. Needless to say, I will not sign this post-closing. Our loan-to-value
ratio is at about 86 percent. Any information you can provide will be greatly
A: Your problem is most unusual. It seems that your lender was quite sloppy
in its paperwork. While your paperwork at the closing did not disclose any PMI,
you seem to have been aware that your loan would require it.
PMI is purchased by your lender to protect it from a loss in case the lender
has to foreclose on your home and the sales price is insufficient to pay off
the debt. PMI is generally required on all loans in which the loan amount exceeds
eighty percent of the value of the home.
In your case the loan-to-value ratio is about 86 percent. Unfortunately, that
means you would have been required to obtain PMI for your closing. Your loan
closer might have been sloppy with the documentation but you should check your
loan application documents and disclosures. You will probably find that the
disclosures indicate that you were supposed to pay PMI.
Most loan packages contain a document that requires the borrower to execute
additional documents to correct typographical errors and to execute additional
documents that may have been missed. If you read your loan documents carefully,
you’ll likely find this page and will see that you initialed it to indicate
you read and understood what the page said.
Because of this document, you will need to execute these documents and pay
the PMI that is required by your loan.
But you might not have had to execute those documents if you hadn’t had
the conversation with your lender about PMI. In your letter you state that you
expected to pay it and were surprised when it didn’t turn up in the paperwork.
If you hadn’t had these conversations with your lender it might have
indicated that the lender failed to give you the proper disclosures prior to
the refinancing your loan. Proper disclosure about the true costs of your loan
is required by law so that you have the ability to compare loan products and
If the true cost of the loan or the fact that it would carry PMI was not disclosed
to you, you lost your ability to fairly compare products and make a proper decision.
Because you weren’t notified about the problem until weeks after the
closing, you also lost your ability to cancel the refinancing within the three
day right of rescission given to homeowners upon refinancing their main home
What you need to do now is to review your loan documents and decide whether
you can say to the lender that you should not pay for something you knew you
should have paid for and for which the lender gave you disclosures.
One last thought: There are lenders in the marketplace that will give a borrower
a loan without PMI even if the loan to value exceeds 80 percent. These lenders
either incorporate the PMI cost into the interest rate, or they do a loan called
an “80/10/10,” which effectively gives you an 80 percent first loan
(so, no PMI), a 10 percent home equity loan (which in your case your be a 6
percent home equity loan) and the final 10 percent is the down payment or equity
(which in your case would be 14 percent).
An 80/10/10, also known as a piggy-back loan, would have allowed you to refinance
without paying PMI – and you may have even lowered your monthly payments.
Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce
R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your
Home Faster and For More Money In Any Market. If you have questions for
them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022
or contact them through Ilyce’s website www.thinkglink.com