Tuesday, July 16, 2013

Does Foreclosure Hurt Your Credit If Your Name Is on the Title But Not the Mortgage?

If you and your spouse want to buy a home but you either don't have good credit or lack a steady income, your spouse can apply for the loan in his/her name only. Your name can then be added to the home's title after the fact. If your spouse has good credit, he/she can qualify for better rates without your name being on the loan. You, of course, still legally "own" half of the home since your name is on the title. Everybody wins--unless, of course, the home gets foreclosed.

How Much Does Foreclosure Hurt Your Credit?

Foreclosure is disastrous for your credit report and scores. Even worse, the better your credit is when the foreclosure occurs, the more it will hurt you. You could lose 150 to 250 points after the foreclosure shows up on your credit report. If your credit was particularly good when you lost the home--as is sometimes the case with "walk-aways" --you may lose as many as 300 points.

The good news here, at least for you, is that because your name isn't on the loan, the foreclosure itself will
not appear on your credit report. Your name on the home's title doesn't give the lender the legal right to report the incident to your credit report or even pursue you for payment. You didn't sign the original loan documents agreeing to pay the debt or agreeing to let the bank foreclose on the home if payments suddenly stopped coming. Your spouse's credit gets trashed but, in most cases, your credit comes away from the foreclosure without a scratch.

Post-Foreclosure Collection: Are You Liable If Your Name Wasn't on the Mortgage Loan?

If the bank can sell your home for more than your spouse owed on the mortgage loan, that's the end of the story. If the home carried an upside down mortgage or a floundering real estate market makes the home harder to sell, the bank may be forced to sell the property for less than your spouse owes in back payments, fees and foreclosure costs. Unfortunately, most states give lenders the right to pursue borrowers for any remaining deficiency after a foreclosure.

The real trouble arises if you live in a community property state. Community property states give lenders the ability to pursue either spouse for one spouse's debt. In other words, the very fact that you're married makes you liable for unpaid debts--even if those debts are in your spouse's name only. While this doesn't make the foreclosure suddenly appear on your credit report, your credit may suffer when the bank attempts to collect any mortgage deficiency left over after the foreclosure sale.

(Read More: Community Property States and Defaulted Spousal Debt)

Lets look at the following example:

Five years ago, Joe and Mary bought a home. At the time they bought the home, Joe had excellent credit and a good job. Mary had a very limited credit history and was a stay-at-home mom. Because she lacked stable credit and an income, Joe purchased the home in his own name and put Mary's name on the title. Two years later, Joe lost his job. He couldn't keep up with the payments and the bank foreclosed on the home. Joe and Mary owed $150,000 on the home, but the bank sold the property for only $100,000.

After the foreclosure, Mary found steady employment that paid well so she and Joe switched roles. He now stays home and Mary works. In an effort to collect the $50,000 deficiency, the bank decided to sue. Because Joe and Mary live in a community property state, the bank decides to sue Mary instead of Joe. Even though Joe's name was on the mortgage and Mary's was not, Joe no longer earns an income that the bank can garnish. Mary does. After winning the lawsuit, the bank garnishes Mary's wages.

If your lender sues you and wins, you'll end up with a civil judgment for the foreclosure debt on your credit report. Civil judgments are public records that, like foreclosures, are extremely detrimental to your credit score.

The moral of the story here is that yes, a foreclosure can hurt your credit if your name isn't on the mortgage loan--but not directly. It all depends on your state's laws, your lender's policies and whether or not you and your spouse end up owing a mortgage deficiency after the foreclosure takes place.

Saturday, July 13, 2013

Ask Lee: Settling With Client Services After Citibank Charge Off

Lee - 

I recently had my Citicard charged off and I just received a call from a collection agency named Client Services. I did not hide from them and I told them our situation and stated I would like to settle. They offered 35% settlement or a payment plan which was 35% + additional costs. In your experience, what is the lowest you have heard (Citibank) settlements to go? I know we will also get dinged for more money on our 1099 taxes for the unpaid amount, so I didnt want to go more than 25% if I knew it was possible. 
Are you aware of Client Services and thier affiliation to Citibank? I know they are a collection agency, but were they hired by Citibank to recover post charge off debt or does Citibank sell off the debt to them? Hard to determine from talking to them because they name drop Citibank, payments can be made to Citibank NA, but yet I feel Citibank is no longer attached to this debt after it was charged off and they are nothing more than collection agency sharks. It may help to understand this and how it may pertain to the negotiation process, as selling off debt is for pennies on the dollar and any settlement will be likely be profitable for Client Services.

Difficult to work with collections, but can they threaten to add more fees (due to lost time since the took debt on)? For example, the amount goes up if I wait to pay it when I have funds in 2 weeks? This is a untruthfull tactic to retrieve more money, correct? If so, I will stick to settling the ~12k Amount owed to Citibank sans any fees or threat of fees.

Another concern is the actusl settlement contract they stated they would email me. Any advice on what the contract should contain? Separately, I would like to ask they include and report to credit bureaus as "settled as agreed", "account closed" or delete the trade item completely. When asked, they try to say they didnt know or its a different department. While my credit is awful right now and I am not worried one bit about it whatsoever, I would like to insist they add "settled as agreed" verbage, so I can get a better start on my credit rebuilding.

As far as payment, they want my bank account number. Thier defense us they do this kind of thing everyday and I shouldnt be worried. Well, I refuse. There must be other less intrusive ways to pay. Can I pay with a certified check and send with tracking? Also read that it may be good to add "by cashing this check, you authorize this account to be settled in full..." to the check. 

I would appreciate you expert advice and guidence. They cannot scare me with negative credit. My hope is to succesfully settle and proceed safely, so I am not swindled $ and then they turn around and resell the debt to someone else....or worse yet, a lawsuit for full amount by Citibank.

Strongly believe many will learn from my experience and dialogue with you. Thank you in advance Lee and I look forward to your response. 



There seems to be a general relief among debtors that creditors – especially collection agencies – offer pennies on the dollar deals and that if they only hold out long enough, they'll get the same offer. This simply isn't the case. My job is to help people stay informed regarding their rights against debt collectors and to help them build and maintain acceptable credit scores. Because of this, I can't tell you the "lowest" I've seen Citibank go because I don't generally see the actual numbers. What I do know is percentages, and 35% is a pretty good settlement offer--especially since its coming from Citibank and they like to play hardball.

With the name "Client Services," you'd think that this collection agency would merely be an in-house collector for charged off Citibank accounts when it is, in fact, a third-party collection agency. After losing a class action lawsuit in 2008 for violations of the FDCPA, my guess is that Client Services will play things pretty close to the vest. Then again, I've been wrong before and some collectors are just downright reckless, especially in a poor economy. 

Client Services is infamous for giving you arbitrary deadlines. The goal is to create a sense of urgency that drives you to pay the debt immediately rather than taking the time to research the debt, send a validation request, etc. Because this debt was originally a credit card debt, the collector does have the right to charge you interest and will probably try to tack on a fee or two, but you're right that you shouldn't let the deadlines scare you. 

Because your debt is so high, its worth offering a higher settlement amount in exchange for a full deletion of the collection agency's tradeline. Peon collectors will likely refuse to do this, but if you can get yourself passed up the line to a supervisor (and the supervisor's supervisor) you might have some luck. Then again, the opposite may be true. A peon collector may agree to your request merely for the commission that a big debt brings. He thinks, of course, that the company will never follow through, but you'll make sure you have all of the settlement terms in writing with the company's logo or on company letterhead before you pay them a dime. Negotiating at the end of the month is almost always more successful than trying to do so at the beginning of the month. Collectors have quotas to meet at the end of the month, and a debt as big as yours will help them meet those quotas. 

Almost all collection agencies will demand you pay via bank draft. This is because it gives them access to your bank account. Once they have those magic numbers, they can either wipe your account clean or, if the debt is still within the statute of limitations, sue you and immediately levy your bank account. Here's the thing about Client Services that makes me nervous: if you refuse to pay by bank draft and instead pay by check, they will electronically process the check--leaving you without a cancelled check to prove that you did, in fact, pay off this debt. By all means, pay by cashier's check or money order, but do not give any collection agency your bank account number. Ever. 

You asked what the settlement contract should contain. Make sure it contains the following: 

  • The company's logo or letterhead. If they decide to violate the agreement later on, you don't want to show up in court with an e-mail from Joe Blow agreeing to your terms only to have Client Services claim no knowledge of that e-mail or who sent it. If it were me, I would demand that they either fax the agreement or send it via snail mail. 
  • A statement of the exact amount you'll be charged
  • An agreement from the collection agency stating that the remaining debt is completely forgiven and that they will not pursue you for the balance in any way. After all, the last thing you want is to settle the debt and then have the collection agency sue you for the rest. 
  • An agreement from Client Services noting that it will not sell the unpaid settlement balance to any other company. 
  • An agreement from Client Services that it will delete all information that has appeared on your credit report as a result of the company's debt collection activity. The beauty of this is that they'll not only have to delete their tradeline but, upon your insistence, any hard inquiries the company conducted as well. 
  • If the collection agency absolutely refuses to delete its tradeline, the agreement should state that the collection agency agrees to update your credit report as "paid." The collection account in itself is bad enough, you don't want it to also reflect that you settled the debt. This looks bad to future lenders. If you're going to pay, make sure they update your credit report as "paid" not "settled."
Your credit will improve over time as the account ages. Accounts that have no recent activity have less of an impact on your scores than more recent debts. Provided you pay your creditors on time, maintain low balances on your credit cards and regularly monitor your credit report, you should see your credit scores slowly increasing over time.