Collections And Your Credit.

Some of the things that get reported on your credit report can later turn into much more serious things on your report and we'll discuss those as we go along. Once those things find their way to your credit report, your scores will drop, the damage will be done, and there will be very little that you can do, other than prevent them from showing up in the first place. That is where your vigilence should begin, prevention! The first negative item you don't want to see is a COLLECTION. You can have a collection reported to the bureaus and not even know it! How is that possible? Let's imagine you go to the emergency room at your local hospital. You think something might be broken, it hurts like crazy and the pain is not going away. The ER staff goes into action, x'rays are taken, nothing broken and everything is cool. It's only a major sprain and time will heal you. This seems like a pretty harmless situation, you have great health coverage and you're happy you don't anything broken. You leave the hospital and go on your merry way. It is now nine month's later, you have decided to buy a house, and there are no repercussions from your old injury, or are there? You, being one of my readers, have pulled your credit report before you make an offer on that house you like and you find out that your credit scores aren't where you think they should be. How can there be a $75.00 collection from a Dr. ........... on my credit report?I don't know this doctor, what is going on here, it has to be a mistake? You call up the hospital where you were treated for your old injury and they tell you Dr. .............. is the doctor that read your x-ray, you never even saw him, didn't know he was involved in your process at all. The doctor never submitted any invoices to you, they went right to your insurance company and for whatever reason the good doctor didn't get paid. A few month's passed by and the doctor, still unpaid, filed a collection. Oh my! The damage has been done now. Your scores will drop on all three reports. It is at this time where you might begin receiving letters from the collection agency people, and maybe they've also tracked you down and you're getting phone calls too. Atthis point know there is a situation you need to handle. The important thing to remember is that once that collection gets filed things will not get better for your scores. People may try to tell you that if you pay that collection agency your scores will improve because now that collecion gets shown as a 'paid collection.' I will tell you that it will not matter, the mere filing of that derogatory information will harm your scores whether it gets paid or not. I will also tell you how I would handle that same situation. The first thing is not deal with the collection agency. They may tell you 'we'll settle this account for $50.00.' Cool right? You've saved $25.00 and you get reported as a 'paid collection.' If your scores don't go up as a result, how did that help you? Instead of dealing with the collection agency go directly to the doctor's office and with hat-in-hand express your regret that you had no idea they didn't get paid and pay the full amount owed. You see when the doctor turned you over to collection agency, it was done with the knowledge that the collection agency would charge a percentage of what they collected and send the doctor the balance. You will want to take this action for one very good reason. The reason being that the only people that can remove that negative collection information are the ones that put it there! The collection agency doesn't have that power so why would you deal with them? The doctor has the power to remove it and I'm saying that in my opinion, you go there and pay the full amount that you owe, and ask 'I'm sorry this happened, I didn't know about it, will you please remove it from my credit report?' My point is that there is a very good chance they will remove it and by so doing, it will be as if it was never there!! I've seen it happen the way I've just described to you.

Before you send that Jingle Mail

You've just come back from the mail drop at the post office where you have put your house keys in an envelope and mailed them back to the lender. In mortgage business lingo, what you've done is known as "jingle mail." You are feeling a great sense of relief because those payments that you are behind on and have not been able to make, are no longer your concern. You are walking away and it's the lender's problem now. Or is it?
In my opinion, your problems may have just become more severe. Remember that the house you just gave up control of, is an asset. You should never give control of an asset you are financially responsible for, over to someone else. If you communicate with your lender before your situation get's out of control, you may find there are many things that can be done to improve the situation.
Your first contact should be with the "loss mitigation" department at either your lender or loan servicer. You will need to know, or ask about, options that might be available to you. Foreclosure should be your last choice. It is your worst choice and certainly one your lender doesn't want to make.
When you execute a mortgage, you are becoming personally responsible for the debt that will be created when funds are disbursed to pay for your house purchase or your refinance. We're not attorney's, we don't issue legal advice, but let me point out what might happen.
You've mailed back the keys on a house you owe $200,000.00 on, you're done! Several month's later at the foreclosure sale, your house is purchased by an investor for $150,000.00. Your lender didn't choose to bid to get the asset, because they had too many on their books as it was, and those empty houses were bleeding cash in expenses and upkeep.
I'm guessing you weren't at the sale. You were out of that mess, not your concern. You are fortunate that your lender chooses not to come after you for the $50,000.00 shortage. They could, they have legal recourse should they choose. You are in the clear, or are you? The lender has chosen to forgive your debt. Things are cool, getting back to normal.
One day you go to that same postal facility where you sent the "jingle mail" from and hhmm....."What is this?" The return address is IRS and you open the letter slowly. You are stunned. How can this be? They say you owe income tax at your tax rate on $50,000.00!!!! Your tax rate is 20%. What? How can I owe this? What do they mean,"discharge of indebtedness income?" I mailed in my keys. The lender forgave me. Guess the IRS didn't. Did your worries really end when you mailed in your keys?
If you think it can't happen, ask your attorney. Watch this blog or our newsletter for future articles and posts of tips to help you.