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Collection account holding up house closing---Please Help.


Boatdrinksin06
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I have been reading the posts on this forum for months and have learned so much, but I am now in a situation that I need further advice and assistance. In advance, thanks for reviewing my predicament and sorry for the lack of brevity......

In the late 90s, I experienced extreme financial hardship in my home based business and long story short, had upwards of $50K in credit card debt. I settled a couple cards for less than full value (8/99) and through a bunch of hard work, I've been credit card debt free for a year now----Except for one account, a Citi account for $9000 that appears on my CR as a PAID CHARGEOFF and it's been assigned to a CA (Midland). The CA's entry is now on my CR for $13,000.

Two years ago, I bought a house and none of this came into play. Last month, we bought our dream house and we've been told by our lender (and others) that the collection account needs to be taken care of before closing or we are out of luck and we lose the $9000 in earnest money that we put down to buy the house. We cannot afford the $13,000 to the CA, much less the $9000 to the OC at this time.

A couple other points of note: I did a DV a couple years ago and I got a copy of my original credit card agreement and then did nothing from that point. A couple points of note: the SOL is obviously long gone and despite the CA re-aging this account with a date of 9/05 and despite Citi saying that the account DOLA is 2/2000, the date the credit card became delinquent was 8/99.

If I wasn't closing in January, I would wait until 8/2006, when this is supposed to drop off CR, but I must close in January!!

Over the next few months, I will be in a position to pay this debt, BUT I don't want this re-aging itself on my CR---I believe this would happen if I paid the debt.

I'm at a loss at to what steps I need to take to salvage the January deal. This course of action will have a lot of impact on my family, so any and all advice is appreciated. Sorry for the long note, thanks to everyone out there for all you do to educate and assist all of us.

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I can't believe you paid $9000 in earnest money. How much is this house?

Anyways, I"m not an expert but I heard that sometime lenders let you settle outstanding debts at the closing table. You said you currently have a home. How much equity do you have in it? Perhaps you can use some of that equity to pay off that nasy collection at the closing.

Or, you can try to extend the closing.

Also, correct me if I'm wrong, but can't you void the contract if you cannot get financing? If so, you can get our earnest money back. Talk to your agent.

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OK first, if this is a paid chargeoff then midland is committing fraud in trying to collect. Now I need to know your State in order to determine if this is even legally collectable. We're talking about 5 years here and in many States this debt is no longer something you can be sued over.

If the account is really a paid chargeoff, Midland is violating the FDCPA and you can sue them for as much as the value of the house if the financing falls through. That should be sufficient motivation for them to drop it and remove the tradeline.

If the account is past statute and uncollectable, legally, then Midland is again in violation of the FDCPA and the result is same as above.

If the account is not past statute, Midland can make your life very tough since they are probably aware you are seeking a mortgage by pulling your credit file. If this is the case, you may have to settle. One way to handle that is by getting some downpayment support from a non-profit such as Nehemiah Foundation. The way that works is the seller adds $10,000 to the cost of the house, gives the $10k to the non-profit, which in turn gives you $9000. At closing the title company cuts a check and mails the settlement.

It isn't pretty, but it can get you out of the bind. Of course you don't do this unless you have no alternative. Chances are good that Midland (one of the worst in the industry) did at least something illegal thus far which you could sue them for. I suggest you spend $50 or so to a consumer protection lawyer and have him review everything you have on this.

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Thanks for the replies.

To clarify, under the OC Citibank (only on )my EQ CR says "paid charge off, account transferred or sold." The debt was for $9000, Midland lists $13,000 on all 3 CRs. I'm in MO, was in GA and this is keeping me up at night.

Is it too late to arrange settlement with OC? Will this re-age debt? Will this change SOL? Or.....is there a dig in and hold my ground strategy so close to my 7 year window finally closing??

I would appreciate any options that allow me to close on this house in January.

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It is too late to deal with the OC. They have sold it to Midland as reflected in the credit reports. That means Midland owns the debt now. BUT, They are still debt collectors under the law because it was sold to them after it was already delinquent. They are not a new creditor. They do not get to "start the 7 year clock over." By law they must report the same delinquency date as the original creditor. Nor are they exempt from any part of the FDCPA (although they will try to convince you otherwise).

$4000 seems like a lot of interest to accrue over just 4 years (That's 9.75% annually). As the new owner they can charge interest under the original terms of the contract...but only from the date they aquired it. Methinks they could be adding illegal charges onto the account. That would not be unusual for Midland to pull.

The real interresting part here is that the statute of limitations has expired both in MO and GA. They cannot legally win a lawsuit against you for it. Unfortunately, mortgage companies don't care about SoLs. They are in cahoots with all the other lenders out there and would make you pay it off even if it was 100 years old, if they could.

You have a choice to make. Either take your lumps and pay it off by whatever means you can, or back off on the new house until you get this issue resolved. You do have several violations against Midland, but they will take time to resolve through court. They have illegally reported the wrong delinquency date in order to keep it on your report longer. They are trying to collect on a debt that is past SoL, which is a deceptive collection practice. Those alone are worth $4000 in statutory damages and you can add punitives to it as well. If you pay it off, make sure you stipulate NO ADMITTANCE OF LIABILITY. In this way you can still sue to recover the funds after you close ont he new house. The FCRA and FDCPA violations do not go away simply because you paid.

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You also need to start thinking "out of the box" about the house you are trying to purchase. Sooner or later, situations like these come down to "what are you willing to do?"

First thing, your mortgage lender/broker needs to be working hard to find some different options for you. Are you strapped for cash and needing a lower payment? The reason I ask is that hard money lenders don't care about your credit, but they will make you pay, A LOT, for not caring. There are also lenders out there who will make an exception for one derogatory TL. (The chances of this are slim, but still a possibility that your lender/broker should be looking into. Have they even requested an exception?) Next, just how bad do you want this house? Many consumers find a way to come up with cash in a situation like yours because the house, or the loan, is not something they are willing to walk away from. Some want to stand on principle and are willing to walk away before paying a CA. Only you know your financial situation and how much your heart can bear.

Methus posted great info. You do have a leg to stand on, but working your way through this mess isn't going to be quick. Look at all your options and alternatives and make the best choice for you. Good luck!

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