Interesting Refi Conundrum

[wwinter]

Hi everyone. Thanks in advance for any insights or wisdom the group may share.

My wife and I are about to close on a cash out refi of our house with PenFed. (They have been outstanding to work with, btw) One of the purposes of the cash out is to make a few home repairs / upgrades and pay off all of our outstanding cc debt (not bad.... we have about $9k between us).

My interesting conondrum is this. We opted to have PenFed pay off our outstanding cc debts directly. One of those is a $4900 cc charge off from Chase in 2014 after a business I owned at the time started having major cashflow issues. PenFed wants to pay that off (and I'm happy to do it) but then just last week I got a letter from a collection agency (nothing is showing on my credit report yet) asking me to settle the debt for roughly $600. 

Now.... I'd love to settle $4900 for $600 but I'm concerned about bringing this up with PenFed. Should I tell PenFed of the offer to settle the debt? 

What I feel like I should do is contact the collection agency directly and offer to pay the balance due in full if they will agree, in writing of course, to delete the trade line and it's negativity completely from my credit report. 

Would that be possible? Is there a way to negotiate a settlement between the $600 they offered and what is owed whereby I get them to delete the tradeline and / or any collection info that may ever be related thereto?

I'm looking forward to your collective thoughts.

[Anonymous]

When I did a "cash out" refi last year my MC did a hard pull a couple days before closing..so IMHO I would be upfront with yours, they tend to frown on "nasty surprises" and seem to be ok with working with you tell them about any possible changes on your CRs.  I would hate for 600.00 to derail your loan.

Besides, they have already seen the CO from Chase and they might advise to pay settlement or pay off chase in full as planned...I am positive that they have seen this kind of thing before

[wwinter]

Thank you NeverTooOldToLearn....

I spoke with both my loan officer and the underwriter we've been working with to ask them if they needed anything else before closing or if they needed to run another credit report. They said, no, that the credit report they have is less than 90 days old so they won't need to run another before closing. Hopefully, that sticks. 

But I do see the wisdom in simply bringing the settlement offer to PenFed and getting their thoughts on how to handle it.

Any others have similar experience they can share?

[Anonymous]

Your Welcome!

Just a side note: It took 3 business days for me to get the checks (mine & ones for some CCs  I was paying off with refi). The federal law requires a 3 day window from signing to monies released. My MC wrote out the checks and "overnighted" them to me...then I had to mail to CC companies. I hadn't used snail mail for a couple of years, so I still made my reg payments on them and then it took an average of 10-15 days for CCs to show pay-off then they (CCs) sent me checks returning any overpayment  Have to admit I got a kick out of them sending me money..lol

Once again Good wishes!!

[Anonymous]

If you do settle the debt make sure to obtain written confirmation that it's legally paid in full -- preferably via e-mail if the collection agency offers that option.

That may be all your mortgage underwriters will need to see; and I imagine that it should entitle you (consult your lawyer, this is not legal advice!) to a full refund of the lender's payment to Chase if you choose not to bring up the settlement with the lender.