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Going into escrow - pay off collection?


JessEA
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This should be a simple answer, but I just can't seem to make a decision.
 

We're trying to buy our first home, and should be starting escrow at any time now.  The issue I'm having is that I've got a collection (several years old) that continues to report the account in dispute, even though I've already had the disputed status removed by the credit bureaus. The collection just updated, and the dispute went back on.  We won't be able to close on our home loan if any accounts are in dispute.

 

So, I'm debating on whether I should just accept their settlement offer ($200) and pay it off so that they'll report it as paid and no longer in dispute.  What I'm worried about is that my credit score is going to plummet if I pay it off.  I'm currently at a mid score of 620, and I have to stay above 600, so I'm really worried about what this may do.

 

The account does report every month, so it's not like it hasn't updated in a long time, so is it a smart choice to pay it?

 

Thanks for your help

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What do you mean by "even though I've already had the disputed status removed by the credit bureaus".  If you told the creditor/CA the amount or account is in dispute, they are required to include the dispute status in the information provided to the CRAs.  Sounds like they complied with the law.

 

What makes you think that paying it off lowers your credit score?  Usually it does almost nothing at first.  All negative items gradually have less and less impact over time, and a paid one should have even lesser impact.  But that's later on.

 

What paying a lingering debt does for a new creditor is shows you will take care of your debts.  They are assuming the debt is valid and wonder why you won't pay it.

 

What I have seen done a few years ago my a friend of mine buying a house with a debt in dispute on his CR is he "paid" the debt ... to the bank as an escrow account ... as part of the closing (in addition to everything else).  In effect he was saying to the bank "that debt isn't about not wanting to pay the money".  He was letting the bank end it on their terms if they wanted, and proving he could pay it.  He told me that debt was something someone cheated him with, but that going to court would just end up being more expense because proof was slim at best.  He said he has reason to believe the bank ended up buying the debt (as a JDB would) he owe for 10% of what he escrowed, and the bank kept the escrow to pay it.  So the bank actually came out ahead if that really happened.

 

Check and see if your would-be creditor is willing to accept an "escrow payment of the debt" to allow them to settle (and keep the escrow) or ignore (and keep the escrow) it ... so you don't have to spend the time worrying about it.  I don't know if they will, but you could ask.

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I'm surprised your lender hasn't told you flat out that you have to pay it. They don't usually like unpaid collections hanging around.

I'm curious how YOU would handle a case where there is a large debt listed on your credit report, which you have told the creditor that it isn't yours (because you never did business with the claimed OC so it must be a case of bad skip trace or such), and they stopped collection.  Now you are applying for a home mortgage and your bank raises that issue.  You tell the bank it isn't yours.  They say it needs to be paid or cleared up, but you don't have the money to go through suing the creditor to force them to remove it.  And you don't have the money to pay it, either.  You'd need yet another large loan from the bank to pay or fight.  So what do YOU do?  Would you try to convince the bank that it's bogus?

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I'm curious how YOU would handle a case where there is a large debt listed on your credit report, which you have told the creditor that it isn't yours (because you never did business with the claimed OC so it must be a case of bad skip trace or such), and they stopped collection.  Now you are applying for a home mortgage and your bank raises that issue.  You tell the bank it isn't yours.  They say it needs to be paid or cleared up, but you don't have the money to go through suing the creditor to force them to remove it.  And you don't have the money to pay it, either.  You'd need yet another large loan from the bank to pay or fight.  So what do YOU do?  Would you try to convince the bank that it's bogus?

 

No offense to the OP but that is something to take care of BEFORE financing a home. In the OP's case they said they have a settlement offer of $200. If I could get a written settlement offer of $200 to have the debt paid in full I would pay it. You may "tell the bank it isn't yours" but it's sitting on your credit report. Sometimes it's cheaper and easier to just pay it and move on. 

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No offense to the OP but that is something to take care of BEFORE financing a home. In the OP's case they said they have a settlement offer of $200. If I could get a written settlement offer of $200 to have the debt paid in full I would pay it. You may "tell the bank it isn't yours" but it's sitting on your credit report. Sometimes it's cheaper and easier to just pay it and move on. 

 

Would be if you knew about it.  Often people find out about bogus debts that aren't there when they do this, because they don't regularly pull a CR or haven't for a while.

 

Yes, sometimes paying is cheaper.  Sometimes not.  But as we know, many DJBs won't clear up the CR even if paid.  We know 99.99% pf DJBs are dishonest.  If the bank is willing to accept an escrow for the debt, that is probably better.  I know this has been done before.  Sometimes these things can't get cleared up for months or even years, no matter how willing the alleged debtor is.  And if the amount is way high, the alleged debtor is screwed (by a system that gets to do this w/o any evidence whatsoever).

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Our lender doesn't require the collection to be paid because it's over two years old. I completely disagree with the collection, which is why it hasn't been paid.  It's not a matter of having the inability to pay it so much as a matter of them screwing us over years ago.

 

At any rate, I have experienced a credit drop before when paying off a collection because it may not have reported/updated for 6 months or longer, and when it's paid, it updates and lowers the score, regardless of it being paid.  It's still a collection as far as FICO matters, paid or not. 

 

Our lender also told us to write each credit bureau a letter stating that we were no longer disputing the accounts that were being reported in dispute, so that the CRAs would remove that status. We did this and they removed the "account in dispute" part of the tradelines. But when the collection updated, it was reported as disputed again.

 

So my question was really only pertaining to paying off the collection to stop it from being reported as "disputed"...and if this could lower my score when the collection is updated again. At this point I only care about getting rid of the dispute so that my escrow can close. The collection has no bearing on the loan approval either way.

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Our lender also told us to write each credit bureau a letter stating that we were no longer disputing the accounts that were being reported in dispute, so that the CRAs would remove that status. We did this and they removed the "account in dispute" part of the tradelines. But when the collection updated, it was reported as disputed again.

This does not make sense for the lender to want you to remove your disputes, or have the dispute status removed by the CRA.  You ARE considering those items to be in dispute, so technically, they asking you to make a fraudulent statement.

 

Once an account is disputed at the CA/JDB, they may feel that status should stay forever, just to protect themselves from the risk that the request to remove the dispute status comes from some unauthorized party.  In terms of the FCRA, it appears to be a CYA approach.  If I ran a CA or JDB, I'd very likely do the same thing.

 

So my question was really only pertaining to paying off the collection to stop it from being reported as "disputed"...and if this could lower my score when the collection is updated again. At this point I only care about getting rid of the dispute so that my escrow can close. The collection has no bearing on the loan approval either way.

If you pay it off, they would have to report it as paid, and zero balance.  But I see nothing that requires them to treat it in their records as NOT now disputed.  They would leave the dispute notation on, even with the paid status and zero balance because that would reflect their records.

 

So how is this dispute affecting an escrow account?  Is this an escrow account for paying that debt account?  If so that conflicts with your statement that the collection has no bearing (if it doesn't why would you be paying it off).  If the escrow account is for something else, why does the dispute status matter at all?

 

I think your lender is not being clear or honest with you.  They need to give you some explanation.

 

A dispute status on the account does not prevent paying it off.  But is that even being attempted?

 

If it has no bearing, why does anyone even want the dispute status off?

 

Why do they want the dispute status off even if it does have a bearing?  The dispute status means nothing more than you having disputed it.  And you may not even be able to get it off without suing the CA/JDB.  And you may not even have a case.

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