Charge off/ Home buying

[fixingmymistakes]

I have a chargeoff from 1/2020 that reports an updated balance every month (around $50 more a month, it was a repossession). They have sold the car but keep updating the balance owed every month with late fees attached. The balance is around 10,000.  Is it possible to get approved for a home loan with this on my credit report if my middle score is above 640, suitable down payment & costs associated with closing, escrow and inspections? Also 3 collections under $1100 from over 3 years ago that I was told not to pay if they wouldn't delete after payment.

Thank you

[AndySoCal]

Some lenders will want those accounts prior to or as a part of the underwriting process. My advice would be take care of the repo and collection account prior to starting the mortgage loan process.

[fixingmymistakes]

Thank you for replying,

does it make a difference if they are settled or paid in full since they both are still negative impacts?

[AndySoCal]

As stated before if plan to apply for a mortgage mostly likely you will have to pay the accounts off at some point in time. I would suggest you do this before you apply than after you apply. I would work to get the best possible arrangement you can make.  Another consideration if you would like to do business again with the original creditor again I would pay in full rather than settle. Why? from the creditor's point of veiw the account went to collections and you did not pay the full balance that was owed. With collection accounts first thing to do is find out who owns the debt.  If the original credit owns the debt you will see a balance on the account. If the original creditor has sold the debt the balance will be zero. In either case you will see an account with the collection agency. With collection accounts you can try for a PFD (pay for delete) some collection agencies will do it other will not. You can search to find if that collection agency is PFD friendly or not. Secondly you can post the collection agency names some one who has more knowledge in this area can advise you.

If the original creditor owns the debt talk with them first. You can not do a PFD the original creditor. If you can get the collection agency account removed that would help in my opinion. Why?  First you would have one less derogatory account on the credit report.  The collection agency account is more recent and is having a greater impact on the score due the recentcy of the account.

by date open.

[IOBA]

If the creditor is reporting the account status as "charged off" - I don't think they can keep changing the balance.

And be prepared to receive a 1099-C for the charged off amount.  You will have to count it as income and include it on your taxes (if you receive a 1099).

Some friends were "refinancing" their mortgage last fall.  The title company told them they needed to pay off a judgement that was on his credit report.  The judgement had been on his credit report for 11 years.  They bought the house 5 years ago, with the judgement on his credit report.  (The creditor renewed the judgement.)  The friends had already refinanced their house twice before, with that judgement there.  But this time, their third refinance -  the title company said rules changed and all collections and judgements HAD to be paid off in full prior to refinancing.  There is no judgement lien on the property. (*Note - friends insisted it was the title company that they talked to, to argue this, about the judgement.)

You could check with a title company and a mortgage company that you would use for a home purchase and ask them what their rules are.

[RobertEG]

Taking a chage-off does not "freeze" the debt blance, and does not require the creditor to cancel any debt or to send a 1099c.

Taking of a charge-off is an internal accounting measure that, in most cases, is mandated under federal regulations to prevent creditors from overstating their actual and reasonably expected assets to their shareholders or prospective creditors.

To that end, they move the delinquent (and not reasonably expected to be paid) account-receivable asset over to a non-receivable bad debt.

That removes the bad debt from their net assets for public accountinf purposes, but does not relieve the consumer/debtor from a penny of the bad debt.  Thus, no requirement to send a notice of cancellation of debt unless and until they additionally decide to forgive and cancel the unpaid debt.

The balance can continue to grow if interest or other fees are assessible under the credit account agreement and applicable law.

As long as the debt remains delinquent, the period since initial delinquency continues to increase, and thus it can continue to have increasing negative scoring impact.  Additionally, if still within SOL, they can sue for a court judgement.

One totally paid, the period of delinquency no longer continues to increase.

If, when finally paid, the creditor agrees to accept less than the full amount of the debt value at that point in time,  the difference between the total debt and what they agree to accept as legally paid becomes, in the eyes of the IRS, cancelled debt, requiring the sendinf of a 1099c if it is or more.

However, no debt is cancelled prior to that time.

[Anonymous]

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@IOBA wrote:

If the creditor is reporting the account status as "charged off" - I don't think they can keep changing the balance.

And be prepared to receive a 1099-C for the charged off amount.  You will have to count it as income and include it on your taxes (if you receive a 1099).

Some friends were "refinancing" their mortgage last fall.  The title company told them they needed to pay off a judgement that was on his credit report.  The judgement had been on his credit report for 11 years.  They bought the house 5 years ago, with the judgement on his credit report.  (The creditor renewed the judgement.)  The friends had already refinanced their house twice before, with that judgement there.  But this time, their third refinance -  the title company said rules changed and all collections and judgements HAD to be paid off in full prior to refinancing.  There is no judgement lien on the property. (*Note - friends insisted it was the title company that they talked to, to argue this, about the judgement.)

You could check with a title company and a mortgage company that you would use for a home purchase and ask them what their rules are.

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My SO has a CO that increases  the balance every month. It has not been canceled, just CO'd.

I would also say to handle this debt because this is 10k. They will figure out the math to increase your DTI on any outstanding debts, including COs and CAs.

It does "look" better to a mkrtgage UW to PIF (pay in full), but settled is better than absolutely nothing. It may help your scores some, too, especially since it is updating monthly and it would also reduce your DTI.

I would say let us know who the CAs are and perhaps we can help you out with whether or not they PFD. If all 3 do, then you may be in store for a good score bump! CAs are also easier to do PFD and settling because once it is off your reports, no one will know if you PIF or settled for less.

Good luck!

[Remedios]

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@fixingmymistakes wrote:

I have a chargeoff from 1/2020 that reports an updated balance every month (around $50 more a month, it was a repossession). They have sold the car but keep updating the balance owed every month with late fees attached. The balance is around 10,000.  Is it possible to get approved for a home loan with this on my credit report if my middle score is above 640, suitable down payment & costs associated with closing, escrow and inspections? Also 3 collections under $1100 from over 3 years ago that I was told not to pay if they wouldn't delete after payment.

Thank you

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I think you're going to encounter issues because of the possibility of litigation. 

It's a large amount, and if the creditor was to obtain a judgment, they can garnish your wages or place bank account levy.

If that was to happen, it would increase your chance of mortgage default if you cannot make payments.

If you already started mortgage process, talk to your loan officer before you do anything.

If you haven't, you can try negotiating with them directly, or consult an attorney before approaching settlement/payment. 

Keep in mind that mortgage process "attracts" those you owe money to since they know it's a very important step, and that's their chance to collect on their terms. 

[AndySoCal]

Regarding the charge off /reposssesion Here is a link that answers the question better than I can

https://www.nolo.com/legal-encyclopedia/deficiency-balances-after-repossession.html