Before anything, have you confirmed that the CA whose trying to collect the debt is actually authorized to collect it (they bought the bad debt from Capital One or they're representing Capital One)? Perhaps you should DV it before taking any action to make sure that you should be dealing with them about the debt.
How long do you have until your refi? Are you going to do it 6 months later or sooner? Perhaps you can work with your lender on helping you getting a PFD for this account. I'll let the mortgage financing experts talk more on this.
If you're not going to refi for a year, and Cap 1 or the creditor isn't playing nice with the PFD, negotiate for a "paid" (not "settled" or "paid for less than owed") marking for less than what you owe. Yes, you'll take a hit initially on your CR, but in the long run, your score will improve AND the account shows as paid. From what I been told, mortgage financing take unpaid collections more seriously than they do your score.