Second mortgage debt settlement!
By Stew
(not my letter)
A couple of months ago, I told you that I had received an unexpected collections letter in the mail, stating that we were 30 past due in payments on our home equity line of credit from the house we sold last summer.
If you read the post, you will realize that while I was aware that we owed this debt, I had not received any communication telling me where to send the payments.
Over the past few months, I have been working on getting balance and payment information from the collections company. They continued to be difficult to contact: phone conversations were vague, messages went unanswered, emails seemed to disappear into thin air and – most frustrating of all – I seemed to talk to a different employee every time I called. Furthermore, if someone from the company left me a message, they would never leave an extension. I could only call the main operator and then try to get transferred to a representative, of whom I was never certain of the name. The other interesting thing is that the only piece of USPS mail that I ever saw from them was that one collections letter back in April.
Ironically, I acted more like a collections agency and they acted more like a debtor throughout the whole thing. I kept calling and telling them that I was intending to pay the debt, but I needed to know exactly how much was owed, how much the payments would be and exactly where I should send them. Seemed like simple requests, but since no one would return my calls and since I had to start at square one with multiple representatives, I still had not sent a payment as of the middle of July.
I think they must have thought I was stalling and trying to avoid the debt because I got a phone call about a week and a half ago with a representative on the other end offering to settle the debt and asking me to make an offer! You could have knocked me over with a feather – I had just told someone from their company that I “am good for the debt, just give me the details” a week earlier, but the person never sent me any documentation or called back . . .
So, I thought, “why not try?” and offered a lump sum of fifty percent of the debt that we owed, never expecting that it would fly. They accepted! I never requested debt help or mediation. I never intended to pay less than what I owed, but when they agreed to settle for half of the remaining balance . . . what could I do? I have a signed letter in my hand that states that if I can get the agreed-upon sum to them by September 2, 2010, they will consider the balance “paid-in-full”. Mrs. Stew and I are pretty happy!
Now, before you try this at home, there are a couple of things you need to know:
- For some reason, the fact that our payments on this line of credit were past due never made it to our credit report. We currently have “excellent” credit. That is most likely due to all of the confusion surrounding the sale of our home and possibly some incompetence on the part of this debt collections agency. I doubt if anyone else could replicate the exact sequence of events that put us in the place where a creditor was asking us to settle a debt without negatively affecting our credit score.
- If for some reason, #1 changes and our score gets dinged, I will take it. The chance to settle this debt once and for all is too good to pass up.
- Frankly, our credit score can drop to 500 for all I care, we have no plans to borrow any more money, ever.
- Coming up with several thousand dollars in a month is going to be a challenge. We typically have one to two month’s worth of expenses in our emergency fund. However, it just so happens that I recently took advantage of a couple of 0% APR balance transfer offers . . . so we will use that money. It puts us in the position of possibly not being able to pay off the credit cards when the normal APR resets, but even at 14 or 15 percent we will be better off with half the balance.
Ultimately, the credit for this turn of events lies with a sovereign God who cares about even the most inane details of our lives. He never promises to make us rich, but He has promised to meet our needs. Settling this debt is a great need and we thank Him for working things out according to his plan.
Article by Stew
Photo by Casey Serin
August 8th, 2010 at 11:41 am
Stew,
Just make sure that they agree to consider the matter closed and the debt paid off. Go browse around Clark Howard’s website and see if you can find exactly what you are supposed to have the return to you. He’s spoken about it a few times on his radio show. Turns out that even with the deal, there are some cases where they can come back and try to get more money from you. He has a number you can call between certain hours where you can ask financial questions for free.
August 8th, 2010 at 12:07 pm
In addition to Ben’s post above, be wary about “debt settlements”. Even if it was the company that offered settlement for a percentage of the debt owed, they can report the “write-off” amount as income to you and you will be liable for taxes on this unpaid portion of the debt. So, yes, you get a great deal with the debt settlement, but you will have to pay income tax on the unpaid portion – something to consider when April 2011 rolls around. Of course, you can budget for the extra in taxes, as long as you are aware of the situation. Heads up!
August 8th, 2010 at 11:27 pm
Go to Dave Ramsey’s website … you are looking for the words “without recourse”. Without recourse means that they cannot chase you for the other 50%.
Just make sure “paid-in-full” = “without recourse”
http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=8131
August 8th, 2010 at 11:44 pm
As someone who has done financial counseling, Ivy is absolutely correct about the taxes.
More words to the wise: make sure any correspondence, etc., are sent with Delivery Confirmation (so you can prove they received it) and sent to a specific individual with any identifying case or account numbers on the money order or certified check (personal checks are not a good idea in this situation (then they have your checking account number). Send a letter with the payment, reiterate the terms and dates in their letter, along with a copy of their letter in case a different person gets it, and give a follow-up date for getting your loan paid-in-full closure documentation (you MUST get these to protect yourself). Make copies of everything before sending. By-the-way, the original lender is responsible to give you the information as to who they turned your account over to for collections.
When this is over, I hope you will contact the President of the lending company with a letter detailing the events, the trouble you had getting information/documentation/billings/clear answers, etc., and suggesting that he or she look into who is responsible for the stress/trouble it caused you. Ask for their procedures regarding your credit report and ask for a response in writing, giving a date you will follow-up if you do not hear from them.
To protect your credit (in the event you should need it in the future) keep everything together in a file and watch your credit report. The collection company has several years (actual time depends on where you live) in which they can report to the credit bureaus and the IRS.
Good luck with everything.
August 10th, 2010 at 9:42 am
This is the first case I have heard about. The collections company is established on plenty of bureaucracy that could be the only explanation of why nobody was capable to answer Stew’s simple questions. And on the top of it they offered him to settle the debt with an offer! Well done Stew! I am wondering how many cases can this company settle with an offer. All of them? Does it still can make a profit? Does it still can keep all employees? Where is the meaning of this kind of business?
August 10th, 2010 at 6:00 pm
The best advise I can give is just to keep trying and get this thing squared away. Some people just don’t know what the deal or what is going on. It’s do to poor training and very bad customer service.
September 2nd, 2010 at 3:18 pm
I hope our economy keeps improving, especially when it comes to mortgages.
July 26th, 2011 at 10:40 am
It’s good to hear that with all the heart ache that it ended up working out for the best for you. Once you get all the final payments done read and make sure that the final signing document says you are even with them and your debt is paid in full.