Underwriter request help

[Anonymous]

Ok a short story, I have a house in TN however I have legal documentation saying I have sold the house, however the loan is on my name and will be until a rent to own deal is made with the company I sold the house to.

With this documentation is a clause saying the seller [me] is responsible for paying off the loans for the HVAC and Water softener. The water softener is paid in full, the HVAC however was sent to a collection and has come off my credit report.

Fast forward to now we are in the process of buying a home and now the underwriter wants documentation of paid in full, or the latest statement for this loan. The loan is roughly at $7k or I should say the collection was at about $7k when it came off my report. My concern is if I poke the bear will it come back on my credit report?

Any help as to how I should approach this is greatly appreciated.

[Anonymous]

I would be less concerned if it ends back up on your credit report than I would the UWs decision knowing it’s in collections. I would work with your mortgage broker on how best to respond with the truth.

[CreditInspired]

OP

Even if it’s not on your credit report, there is a possibility that a lien has been placed on the house for the amount owed, and if so, would be found during the title search prior to closing.

And it’s a debt owed. Like @lgh said, your major concern should be being upfront with your loan officer. It’s nothing they hate more than surprises.

The best way to approach this is to pay the debt you promised to pay.

[Anonymous]

Thank you both for your responses. I think i need to clarify a few things

The loan is towards a house that i will "not" be selling in order to buy this new house. I am getting a VA Loan and working on purchasing my second house. There is a lien on the house in relation to the loan debt, however since i am not selling this house so currently the lien shouldn't pose an issue?

I do plan on paying the debt, however, at this time I am unable to pay the full loan debt. 

I have disclosed this to my current loan originator, I have not withheld anything from them. I know my concern should be the underwriters decision, however, at this point since it isn't on my credit report i didn't want to reach out and contact the debtor and than come close to closing the collection reappear. 

Currently, i have reached out to the original debtor, (not the collection agency) and spoke with them on getting information in regards to this account. They sent me the information as far as the payment history and the current status of the account. I have forwarded this information to my loan originator. 

If you have any question that may lead to more advice, please ask and I will answer in hopes i can make the situation even more clear.

[Anonymous]

I would send them the information you get with an explanation why the debt went to collections. You are buying a Second home which usually has tighter guidelines. The UW will be interested in why this is delinquent but you can afford a new mortgage. Hopefully it was also disclosed on the application when asked. As stated it doesn’t matter what is on the credit report it still needs to be disclosed. Good Luck!

[CreditInspired]

OP

Thanks for the clarification.

However, I’m still concerned about the collection. Here’s why—collection agencies have a way of popping up at the most inopportune times. And here is why. They are always scanning the CBs looking for new mortgage applications. Why? Because this is when they know the buyers hands are tied and now they have leverage.

I don’t think this is going away regardless whether it’s on your CR or not.

[ShanetheMortgageMan]

The question on if the collection would possibly pop back on credit would be better suited for General Credit Topics.

If the underwriter is requiring the debt to be paid then they are expecting an "account paid" letter.  Since it's in collections there is a good chance you could settle for less than the full amount, since you don't have the full $7k then perhaps they'll accept what you could afford.  The "paid in full" part just means that nothing more is owing, not that you can't settle the debt for less than what is owed.

Another route is since you are getting a VA loan, the seller can pay for this collection as well (considered a "concession" & is limited to 4% of the appraised value), speak with your loan officer about doing that, and if they OK with it then you and your loan officer should call your real estate agent to discuss amending the contract.