Legal Question in Real Estate Law in California

We took out an FHA backed loan on a bank-owned property Jan of 2013. We put 3.5% down and we knew we would be paying the PMI ($330/mo.) until the equity was high enough to cover what would have been 20% down.

But NO ONE told us that we were required by FHA regulation that we must wait 5 years before we're even allowed to make a request to have the PMI removed. We also can't find it anywhere in our massive amounts of paperwork.

We have made significant improvements to the home and the market in the area we are in is going crazy (i.e. bidding wars, over asking purchases, etc.) and our home is already listed on all the realtor websites (zillow, realtor, redfin) waaaaaay higher than we paid/owe.

I realize this is one of the greatest scams pulled off by insurance companies ever... (have the buyer for pay for insurance that doesn't benefit them and let the premiums for the insurance increase without regulation and without the buyer having competitive plans to choose from), so I probably don't have any fair recourse.

BUT... what if I just took our lender, a rep from the investor (Ginne Mae), and also someone from FHA to small claims court at the same time, once a year to get my $3,960 a year returned? I could present verified home value, what I owe, payment and improvement history and say that PMI cannot be applied to our loan any longer per the 1998 Homeowners Protection Act. I realize that I probably won't win, but the nuisance I'd be causing someone at Ginne Mae and FHA would be totally worth my $100 filing fee and a half-day in small claims.

So, my questions:

1. What would really happen in small claims?

2. Why isn't there a class action suit on PMI in general - seems to me not giving consumers a choice in Insurers when they're paying the bill let alone paying for someone's else's benefit flies in the face of fair business.

3. Since most consumers were paying PMI before the housing market crash, why hasn't any Mortgage Protection Insurer gone out of business? And shouldn't those insurers have covered the losses that drove the crash? Or can we just be honest here and admit that PMI is a total scam?

Asked on 8/27/13, 12:18 pm

1 Answer from Attorneys

Timothy McCormick Libris Solutions - Dispute Resolution Services
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1. You can't sue more than once for the same wrong. So small claims is not an option.

2. Just because something is not "fair" doesn't make it illegal. That's why. Lenders are free to offer loans on their terms, including choice of PMI insurer - take it or leave it - just like a restaurant can tell you "no substitutions."

3. PMI did cover many of the losses. What they didn't cover was the MASSIVE losses on loans where the property values were inflated enough for no PMI to be required, and then crashed.

If your property has really increased in value enough, your recourse is to re-fi to a non-PMI loan.

Read more
8/27/13, 12:26 pm

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