People are in such a rush to close on their mortgage that they overlook the risk that paying a small collection item might completely derail their loan. In the last few weeks, I’ve encountered two such mortgage customers.

The Issue Is As Follows:

A mortgage customer discovers that his credit report has a collection item. He doesn’t know what it is. It’s sometimes the result of identity theft. The customer believes that paying the damn thing will remove it from their credit record is the way of least resistance. When my customers learned that the exact reverse occurs, they were startled and heartbroken.

Two things happen when you pay a collection item:

  1. You’re admitting that the debt is yours. As a result, all hope of obtaining a court to order that item removed from your credit report is gone.
  2. The collection item is frequently reclassified as a “paid” collection item rather than being eliminated.

So, what are your options?

If the thing being collected is the result of identity theft,

  • Get a copy of the police report. It’s straightforward and painless. Tell your client to go to the police station with his credit report, show the detective the item that isn’t his, and get a report. We’ll send your client a disagreement letter with the police report attached.

Within 30 days, we can usually have that item removed. If not, we will initiate a lawsuit on your behalf that will not cost your client anything and will most likely result in the removal of the item within 60-90 days.

If your client is unfamiliar with the collection,

  • Then have your customer contact the collection agency to confirm the debt. Your client will either recognize or not recognize the item. We can dispute that item without the need for a police report if he does not recognize the debt.

If the item in question is genuine,

  • Pay it only when you’ve reached an agreement with the debt collector to have the collection item removed entirely from your credit report in exchange for payment. Before your client pays the loan, make sure you acquire the agreement in writing. If the debt collector refuses to provide you something in writing to commemorate the agreement, obtain the debt collector’s fax and email address to ensure that you submit a confirmation of the arrangement to the debt collector. Do not accept a notation of “paid in full,” as this will still sabotage the transaction.

Whatever you do, don’t allow your client to pay the bill without first reading this article so he may take the best possible steps to erase the item from her credit report.

If your client is having trouble with any of these areas and needs help, we can help. Please send an email to

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