Collections Law/credit report

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Question
My husband has an old debt on his account from a land in FL that he was unable to make payments on, due to being laid off in 2009. As we recently applied for a home loan, we learned that this is obviously a big issue on his credit.
The account status is "closed" and the payment status is "charge off" and then there's no activity reported since April 2012. Our banker said that we will be unable to obtain a loan until this is resolved. We did receive papers from an attorney in Maryland trying to collect our debt. Due to us owing over $80k and the land being worth literally about $5k, we focused on other financial obligations. (Also my husband was initially in this with his brother, who however is not on the loan with him. Eventually his brother stopped paying, leaving us with a monthly obligation higher than what we could afford)
Anyway, the only information listed on our credit is that of the original lender and as mentioned above, no activity since April 2012. We would like to resolve it, especially because we are trying to buy a home. But we are not sure of who to contact and where to start. Our banker suggested to contact the attorney who handles the debt collection for this, but would that make sense, as they are not listed on the credit report at all? Even if we pay them, would they have control over removing (or changing the status) of this item on my husband's credit?
Thank you!

Answer
First, let's understand the situation. Hubby owes a pile of money on land purchased in Florida which was undoubtedly foreclosed on. There is a huge deficiency balance owed. Florida is a "Recourse" state meaning they can come after him for the deficiency. In a non-recourse State the lender has a choice - foreclose and take the collateral or sue the borrower, but not both. In a Recourse State the lender can and usually will do both, and in that order. Since the brother is not a borrower on the loan the brother and his actions are irrelevant.

You want to resolve this? If you have about $80,000 it will be easy. If not, it won't be so easy.

The pull of the credit file probably shows a reason "mortgage" - meaning you are trying to buy a house. The lender on the land will feel you have money to put down on the house and therefore they can get that money towards your bill with them. Expect very little sympathy or cooperation. What you are looking for - a cheap settlement - only happens when they think you have NOTHING.

The second issue is that after the bursting of the housing bubble in 2008 mortgage lenders have become incredibly difficult to get mortgages from if the borrower has ANY credit issues. Their fear is that this matter may turn into a lawsuit, then a Judgement and then a salary garnishment which will adversely affect your ability to pay the mortgage.

Since this will not go away quickly or easily, you can probably forget about buying a home right now.

Some laws:

First is the Statute of Limitations (SOL) for collections. You don't say what State you live in. The SOL for written contracts in Florida is 5 years. In Maryland it is 3. You say the loan was charged off in 2012. the SOL starts with the last payment made. Once the debt has gone past the SOL without him being sued you have a defense against being sued. That won't mean much to the mortgage lender but it does give you something to work with.

The second is the Federal Fair Credit Reporting Act SOL for reporting on your credit file. That is 7 years from charge off, so this will come off his credit file in 2019 (2012 plus 7).

One more factor - Community Property. Neither Florida nor Maryland are Community Property States, so maybe you can qualify as buyer of the house without your husband. This would be the only solution open to you immediately. All other solutions will take time - maybe a couple of years - to accomplish.

I suggest you go top a web site I set up some years ago and post your issue there. The web site is www.debtorboards.com and it is free.

Collections Law

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Steve Katz

Expertise

Debt Collection, Credit Reporting, FCRA, FDCPA, TCPA issues

Experience

Founder of Debtorboards, co-author of Debtsmanship, former Collector, Credit Counselor

Education/Credentials
MBA

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