Expert: Michael Brotherton - 6/19/2007

Question
QUESTION: Purchased a new home on an 80/20 loan, $186,000 and $46,000 as second.The house foreclosed and sold by the sheriff. The $46,000 was not satisfied and is a chargeoff by a National Bank.The collection agency was not willing to take 7,000 a settlementand now he wants 25 percent of the total debt. question (1) If the bank charged off the debt,didn't the collecting agency purchase the chargeoff for pennies on the dollar, (2) and if that's true can this debt be negoiated for less than 25 percent?

ANSWER: It is not clear whether the collection agency actually owns the loan or is representing the original lender. Either of them may settle for whatever they determine is collectible. Yes, if they purchased the note they probably have a relatively small investment and could settle for less, however, 25 is a steal. The question I would ask is what are your assets? Are they attachable? DO you have cash on hand to negotiate with?

Make the offer. The worse they can say is no. or HELL NO, in which case I would take their offer and run.

---------- FOLLOW-UP ----------

QUESTION: This loan is unsecured.Last payment was 07-05, doesn't the bank have to write this loan off after a certain period of time if there is no positive activity?, and if its charged off, isn't it basically in the hands of the collector?, and finally can a National bank try to collect on a chargeoff account? I talked with collecting agency and told him lets communicate in writing, He told me no he has too much to do. I asked him for 15 days to make a decision he says no that will be the end of the month and he had to have time to call his client, so we agreed on 7 days before I contact him again. I do not have the ready cash to settle yet.I cannot get him to tell me whether he owns the account of the bank. Thanks for the reply.

Answer
The collector cannot get what you don't have. However, even if the debt is charged (by the original creditor) it is collectible. The account can collected in house in the recovery dept. or assigned or SOLD to a collection agency. If they are willing to settle they can settle at any time, now or later. Make a payment plan you can afford until you can afford to settle.

Send them a "cease and desist" letter advising them to cease all phone contact. Thank them for their offer to settle and advise them of your proposal. They will have to cease phone contact and will have to communicate in writing. They will make time I assure you. Once you are in a position to settle write them another proposal.