Brian Crist

Julie in Orem Utah, like many other young folks, made some poor financial choices in her late teen years. In addition to bouncing a few checks, she signed then defaulted on a gym membership contract (yes, those gym memberships are enforceable contracts).

Turn the clock ahead 3 years. Julie gets married and they want to buy a home. Both her and her husband's incomes are needed to qualify. Upon accessing their credit report, we quickly discovered that while her credit history is generally good, four collections showed up, sinking her credit scores below the minimum threshold required to qualify for a home mortgage.

The four collection accounts totaled around $1,500. The two bounced check and the gym membership collections were with one collection company. The medical collection was with another.

Fortunately, Julie and her husband came in to see me before they went shopping for houses. (Finding the home of your dreams and having those dreams dashed on the rocky shore below can be devastating.)

Here's the kicker. Not only did these collection accounts need to be satisfied (paid off), in order for Julie to purchase a home within the next year (and take advantage of the government tax credits), these collection accounts had to come off her credit report altogether. Why? Because credit scores are, in large part, calculated from recent activity, a recently paid off collection account will have drop the credit scores more than an older collection account with a past due balance.

Before going to battle, I told Julie and her husband, here's what you need to know about collection companies:

1. Their one and only objective is to get money from you.

2. They have no moral obligation to you or anyone else, including the credit bureaus, to be sure that you are taught a lesson, or that they recover the entire debt.

3. They most likely purchased the debt from the creditor for pennies on the dollar.

4. Unless the debt is significant, they will not bother taking you to court and force collection.

5. Any money they collect is gravy. They'll take what they can get, within reason.

6. They cannot be trusted.

7. They lie. No matter how nice they are to you over the phone, they are your enemy. Don't forget that.

8. They will tell you anything, even if illegal, to force you into sending them money.

9. Get everything in writing BEFORE sending them money.

I had Julie call up the collection companies and off them 40% of the amount owed ONLY IF they promised in writing to remove the collection account completely from the credit reports. The collection company will say they can't do that, or it's not legal, bla, bla , bla, but they can and they usually will. Julie told them that if they don't cooperate, she won't buy and she'll wait until the account falls off in 7 years.

The collection companies cooperated. Julie paid just under $800 to settle the debts AND those collection accounts were removed from her credit report as if it had never happened. Her credit score improved to over 740! That's where you want to be.

Moral of the story: talk to a mortgage professional who really knows how to do this first and don't be afraid to negotiate with collection companies.

Julie, her husband, and their new baby boy, now enjoy that brand new home, which, by the way, came with $12,000 of soon-to-expire government credits. That's a lot of diapers.

Will this strategy work for you? Contact me and we'll see. Brian 435-862-9000

3 things you may not know about me:

I'm pre-pregnant, pre-dead, and a pre-billionaire. Now I don't have an English degree (oh, wait a second, yes I do), but the prefix "pre" means "before." And that's just what a pre-approval is. A "before approval." Well, congratulations, you're in good company--all those folks who have yet to be approved to purchase a home.

At best, a pre-approval is the opinion of a super good loan guy that you'll be able to get that mortgage loan. At worst, it's the opinion of a really lousy loan guy.

Instead of singing "Ain't Got Nothing If You Ain't Got Love," Michael Bolton should have been screaming at the top of his lungs, "You Ain't Got Nothing If You Ain't Got Underwriter's Blessing."

Simply put, the solution is to get approved-for real. The word "approved" has been diluted over the years. Approval is like pregnancy. Either you are or you're not. There's no kind of, pretty much, or basically approved. A true approval can only be claimed once the decision maker has seen the file. And that decision maker is the underwriter. Until she has signed off on your income, assets, credit and a myriad other requirements, you got nothing.

Why don't all mortgage lenders and brokers offer real approvals before you finalize your purchase to make that offer on your dream home? Because, depending on the company, it's either difficult or just plain impossible. Loan brokers, in particular, who have no control over who underwrites your loan application, may not be able to do it. The actual lender often refuses to underwrite a loan without an accepted offer and appraisal. By then, it's too late to hear, "no." Large direct lenders often have policies to the same effect.

I helped pioneer the "underwriting first" concept many years ago. And with the lack of loan options available, Plan B just simply isn't there. So put the pre-approval ideal back on the shelf where it belongs and come get a real approval.