Any money received by the Bank from a private mortgage guaranty insurer is credited to the account of the debtor prior to the Bank bringing a deficiency action. The language of the new law raises the question of whether the Bank is required to have applied for and received from the private mortgage guaranty insurer proceeds of the private mortgage insurance prior to the Bank’s bringing an action for the deficiency. It is likely that a debtor’s counsel at some point will raise the issue and argue that a deficiency lawsuit wherein the Bank has not yet pursued private mortgage insurance, must be abated, pending receipt of proceeds. If the court refuses to abate the action, it is, nevertheless, likely that an amount equal to what would have. been received by the Bank from its private mortgage guaranty insurer will be credited against the deficiency. This amount cannot often be calculated with certainty, since a private mortgage guaranty insurer may reduce the amount the Bank expects to receive based upon certain provisions in the policy, such as the Bank’s failure to obtain insurer’s consent to renewals, extensions or other modifications of the debt. In order to avoid these complexities, it would be prudent for a the Bank immediately to file a claim for private mortgage insurance after nonjudicial foreclosure on the collateral.
The private mortgage insurance credit does not apply in a lawsuit by the private mortgage guaranty insurer pursuant to its subrogation rights against the debtor or other person liable for any deficiency.