Will an inactive collections law suit affect mortgage application?

[hbanana10]

I was sued back in 2017 for an old credit card debt (last payment made in 2013 or 2014) but I did not know about the lawsuit because they never served me. 

I recently found out about the case when I googled my name and it popped up on a legal database website. I researched the case number and it looks like the case has been at a stand still since 2019 (but still listed as “pending” on the court website). The last document filed was "declaration of non-service" back in March 2019.  

I contacted an attorney and he said there’s no reason to restart anything right now (as this debt is not even on my credit report anymore) and that we can take action if the case starts moving again but he said that it looks like the judge was leaning towards dismissing the case altogether due to non-service.

My husband and I are getting ready to start the  loan application process -- I am worried that this will pop up on my public record check or background check. Could we get denied for a loan bc of this? Will this come up even though it's not a judgement?

We can pay in full or settle if it comes down to it. Just not sure what our next steps should be.

Side note:

-We will be looking into a conventional or jumbo loan.

-My husband has 800+ across the board and I have 712-722 across the 3 bureaus. (Non mortgage scores)

-we have approx $300 monthly debts. Not anymore than that. 

Thank you in advance for any advice! 

[ShanetheMortgageMan]

Are you saying this turned into a collection?  You'll need to figure out if this debt is actually owed or not.  If it's not owed then shouldn't be anything to worry about.  If it is still owed then most likely the worst case is you'd just be required to pay it, but shouldn't result in a loan denial.

[hbanana10]

Hi Shane!

It was a collection / charge off that turned into a lawsuit. 

When you say "debt is actually owed", are you asking if it's my debt from a decade ago? If so, yes. It's my debt. I don't have much info as my memory is a bit fuzzy and it's not on my credit report and I don't have the lawsuit paperwork.  

If it comes down to the worst case scenario, would they require us to pay in full or would they be ok if we settled?

TIA!!!

[ShanetheMortgageMan]

After it turned into a lawsuit then what was the outcome?  You said your attorney said "it looks like the judge was leaning towards dismissing the case altogether due to non-service"... then what happened?  If you lost, then usually a judgment is entered to the benefit of the plaintiff.  If that's the case, is the judgment still owing or has it passed the statute of limitations for being collectable?

Lenders don't care if you settle or pay in full.  If you are fine with paying the debt if your eventual lender requires it then you can just leave it as it, but if you'd really want to avoid paying it then to give yourself peace of mind you should look into if you still legally owe the debt or not. 

If it's a judgment then what underwriters are looking for is the dismissal or satisfaction paperwork, in the case of a satisfaction you just need to pay the plaintiff whatever they want you to pay to get them to file the satisfaction.  You get a payoff statement, you pay that amount, then the plaintiff should file a satisfaction with the court... or if you pay it through the loan closing then just a payoff statement is needed and that amount is tacked on to the amount you'd owe at closing, then the plaintiff should eventually file the satisfaction after you close.

[hbanana10]

Nothing has happened. 

Last motion was in March 2019 with declaration of non-service and then nothing.

No judgement. No dismissal. Just nothing. No future hearings. That's why my attorney suggested to leave it unless it comes up down the line. Im just not sure if that's the best advice when it comes to mortgage applications/home purchases. 🤷🏻‍♀️ 

[ShanetheMortgageMan]

It sounds to me that since no decision was made, the debt would just remain at the status last was, which sounds like a collection.  Check with your lawyer on that.  If the statue of limitations has passed on that type of debt being legally owed then you should be in the clear.

[hbanana10]

Thank you so much for your help, Shane! 👍🏼👍🏼

[pizzadude]

From a credit reporting perspective I think you'll be fine, as the original account / collections have already aged off your reports.

However, when a mortgage inquiry appears on your reports, this may trigger a notification to collection agencies who might then pop up and contact you.   All of the CRAs sell "collection triggers" like this, which is why many people in the midst of applying for a mortgage are suddenly hit with collections or are contacted by CAs.  

[hbanana10]

Hi Pizzadude!

Thanks for your input!

Do these triggers happen after regular Cc applications too? I've gotten new ccs since then but no contact from any collections agencies.

Do you have any suggestions on how I should deal with this?

i don't mind dealing with them after I purchase the home. Just don't want this to hinder the way. 

TIA!!! 

[pizzadude]

I think your attorney's advice is solid, I wouldn't take any action at this point.   If they do contact you, assuming the debt is outside of the SOL, you can always send them a cease & desist and they'll go away.  

There are many different triggers that CRAs sell, some probably based on mortgage apps, others on any credit related activity, see below:

https://www.transunion.com/product/triggers