By Anessa V. Cohen
Credit standing has become a fixture in all of our lives, whether the pursuit is new employment, opening or expanding a business, shopping for a car or a house, or even simply applying for a credit card to use for shopping so you do not have to have cash in your pocket at all times.
In particular, house-hunters typically need to coordinate their proposed purchase with a mortgage in order to put together the needed funds. In applying for this mortgage, they must be able to show credit scores high enough for the mortgage bank to approve their application.
The first step taken by the bank is to pull credit reports on applicants to see what their credit looks like. Hopefully the credit report shows a nice, clean credit history, one where the applicant pays all bills on time and does not have overly cumbersome credit obligations. This is the ideal candidate for a high credit score and good chance of mortgage approval.
But what happens to those mortgage applicants who find that certain credit obligations that are negative to their credit rating and that they thought were removed from their report years before suddenly have resurfaced? The account notices were supposed to be expunged but now cause them new difficulties in obtaining mortgage financing or in any new situation in their lives requiring they show a clean, positive credit report.
Many years ago, the first thing to do would be to ask the applicant to review any negative information and see if there were any errors. Years ago, errors were common and it could take months, if not longer, to get them removed from a credit report. There was no law in place as there is today, which requires the credit bureaus to remove a derogatory account from the credit report within 30 days if it is not verifiable.
It was not unusual back then for mortgage applicants to pay off these collection accounts even when they did not owe the money requested, just to make sure the accounts did not cause them to be turned down for the mortgage they were looking for, making them lose their house purchase.
Some of the credit-reporting laws put into place since that time made dealing with these kinds of situations much easier. Now, if a collection company cannot prove there is actually an amount due on a contested account, it is supposed to be removed from the report within 30 days.
I had thought that with these new rules in place, these odd collections accounts, unknown to the consumer, that were popping up on credit reports would be a thing of the past. But after reading the newspaper this week, I see the collection companies have come up with a new plan to replace the old. Collection accounts are being placed on credit reports in the case of people who have filed for bankruptcy protection at one time or another.
When someone files for bankruptcy protection in court, typically there is a list of credit debts that the court has declared as “discharged,” meaning that the person filing for the bankruptcy does not have to pay them due to the bankruptcy. The creditor from that moment is supposed to cease and desist trying to collect that debt from this person.
It seems that some creditors decided to ignore the court-ordered bankruptcies and are selling those now zero-balance debt accounts or hiring collection companies to chase after these debts as third parties trying to get around the bankruptcy courts.
These collection companies have been putting new collection-account notices on the credit reports of individuals whose bankruptcies have been filed and approved, stating that these debts are due and payable, as opposed to the court’s ruling that they are no longer due. The idea is that if they chase these people long enough, or if some people need to apply for new credit, they will have to pay off those bogus collection accounts even if they no longer owe them any money rather than run the risk of being denied new credit—such as a mortgage or car loan, etc., which needs to be dealt with in a short span of time.
Some of the biggest offenders are the big banks who are paying no heed to the courts and are pretending that these debts are still alive and due.
A number of federal judges are starting to sound the alarm as to the legality of this practice, and we should all stay tuned to see where this ends up—will the banks be forced to halt this practice or have they found a loophole to get around the bankruptcy laws? And, if so, how will this translate in the future for those looking for bankruptcy protections?
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker and a licensed N.Y.S. mortgage broker with over 20 years of experience, offering full-service residential and commercial real-estate services (Anessa V Cohen Realty) and mortgaging services (First Meridian Mortgage) in the Five Towns and throughout the tri-state area. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa.cohen@AVCrealty.com.