Help! Applying for a mortgage and now get sued by CC company

[Anonymous]

Ok this is my first time posting a message.  I have always had good credit until I went back to graduate school fell on hard times and could not pay my bills. Needless to say, they were placed in collections and charged off.  That was 2 years ago, and since then I have worked on my credit and brought my score from 519 to 638.  I thought I could finally get a home loan and buy a  house.  I applied through FHA for my home loan and received a pre approval. I went house hunting, and found my dream home, signed all the papers and turned in my financials.  As soon as I got home, I got a letter in the mail from an old creditor 3 years ago stating they have filed a lawsuit at my local county office and I have 21 days to respond before they are granted judgement,  (I have not been offically served with paper, just notices left on my door that I need to sign for a certified letter).  My first question is, if this judgement goes through before I close, will it prevent me from getting my house?  its about $3000.00.  Second what would happen if I paid it now, will it affect my loan application/credit score and possibly my closing?

[Anonymous]

I would contact the creditor and offer a payment in lieu of the lawsuit.  See if they will drop the lawsuit if you pay the balance (or whatever settlement you arrange).  Postdate a payment to them as late as you can and still get them to drop the lawsuit.  Then, it will take langer to show up on the credit report as paid.  This is only so if it re-ages the report and drops your scores a few points it is no big deal.  The idea is to keep ti from going to a judgement but to give you time to get all the paperwork done for the house prior to the account showing as paid.  Overall the account being paid is a good thing, but it may ding the score a few points for recent activity.  Have the LO discuss with the underwriter if they are comfortable with you paying off that debt prior to close either way as the underwriter may just tell you to go ahead and do in and to not worry about the possible short term credit drop that may occur.  

Also, be aware, the underwriter may make you pay some of these debts prior to or at close either way.

[DallasLoanGuy]

they have stepped up activity because of the mortgage inquiry.... (they monitor your credit).

it very well may be a good idea to pay it.

maybe you can negotiate a settlement?

when do you close?