Zombie Debt: Nightmare at the Closing Table
So, a quick survey — raise your hands if you screwed up your credit in your 20’s. You in the back — are you just stretching, or should I count you?
But you made good, right — or, at least, those debts are so old they can’t affect your credit report or score.
Muhahahahahaha….
The way US debtor laws are set up, bad debts older than 7 years are essentially illegal to report. Debts discharged by a bankruptcy court are unambiguously illegal to report. So, what happens when you’re closing on your first — or fifth — house, and that store charge card you defaulted on when you were 19 and lost your job at Barnes & Noble shows up?
The credit reporting agencies work for creditors, not debtors. There isn’t a mortgage broker or loan officer in the country who hasn’t sat down at a table to close a loan and had a deal go sour because something shows up — and usually at the last moment. It doesn’t matter if you’ve been a victim of identity theft, or been forced into bankruptcy because of unemployment or disability, or if you just screwed up. Zombie debt can reach its mouldering hand up through the floorboards, grab you by the ankle, and eat the brains of your — well, you get it.
Debt collection agencies are pretty sleazy as a rule, and many of them run afoul of federal law as a part of their mission statements. For instance, they write scripts that let their tele-goons insinuate that they’re going to sue you, or attack your assets, or garnish your wages, or file criminal charges against you, even though they have no right or intention to do those things. They exist to harass and frighten people into paying their debts, which might not be so bad if it weren’t so inhumane. And immoral. And illegal.
Practitioners of the dark art of Zombie Debt rely on people’s ignorance of credit law. The old debt shows up at the worst possible time — closing — and the customer pays — sometimes a debt she HAS ALREADY paid in full — or settles, or has to walk away from the table. It’s a bad time for the folks who’ve done all the work to get you to that closing table, including the mortgage broker who now has to be the bad guy.
Keeping track of your credit before and throughout your mortgage process is the only real defense you have.
If you see Zombie Debt, or get a collection notice, Validate the debt as your first action — a collection agency is NOT necessarily affiliated with the company you borrowed from in the first place, and you should NEVER, EVER give money to ANYONE but the company you originally borrowed from anyway.
Make sure you always see all 3 of your reports once per year at www.annualcreditreport.com , though if you’re in the market you should subscribe to a monitoring service that lets you see your report often — and that goes double if you’ve has past credit trouble.
(Thanks James, for the correction — freecreditreport.com is a credit bureau subscription service designed to direct you away from the free site to a PAY site. Sleazy, sleazy, sleazy! And it’s run by the major credit reporting agencies, not by Joey Bag-a-donuts!)
Validation will kill Zombie Debt, but not fast. But paying a dishonest collection agency perpetuates a cycle of consumer abuse that hurts the real estate market, wastes peoples’ time, and makes a lot of people — buyers, sellers, agents, brokers — miserable.
Mel said:
AMEN, brother! With our upcoming move to San Fran, w e have to present credit reports to potential landlords. Yes, just to RENT some crap-assed apartment in an earthquake zone with no parking or laundry.
And of course, because I was suicidally depressed, uninsured, and underpaid (I would love to see a study of how those three things in tandem are a self-fulfilling cycle of guaranteed poverty, but that is another blog) my zombie debt– though now completely paid off, ironically!– has been haunting not only me but also my husband. Let’s not mention how his divorce from his first wife screwed his credit, as well. Arghh!!
February 20, 2008 8:49 PM
mike.martin said:
Sorry to hear it, but I’m not surprised. This is what I mean by sleazy — this isn’t an honest attempt to collect a real debt, it’s extortion and fraud, and you have to wonder why the credit reporting agencies aren’t more interested in things like accuracy, or, oh, federal law. I think we’re going to see that this practice hurts banks, too, because it makes selling mortgages that much harder. At least they aren’t sending a guy named Pipe Wrench around to bust your kneecaps and steal your wedding ring.
February 20, 2008 8:59 PM
Shorty said:
Ugh, that is skeezier than I thought.
February 21, 2008 6:09 PM
James O'Boston said:
Wrong site:
it’s NOT “freecreditreport.com” — that’s a pay site that sets up a scammy SUBSCRIPTION that you have to CANCEL… totally bogus (and it’s run by a credit bureau, go figure)
anyway, don’t be a fool just cuz they spend all that money on advertising…
You want:
https://www.annualcreditreport.com/
That’s the real site for links to one free credit report per 365 days from each of the 3 major credit reporting agencies. Do it like I do an order one every 4 months from a different agency…
February 25, 2008 12:18 AM
mike.martin said:
Thanks James — that is SUCH a creepy thing to do! I’ll edit the article and correct the site — thanks!
February 25, 2008 11:33 AM
Prince Ella Green said:
Our elected officials can no longer afford to look the other way while consumers get taken to the slaughter house. Our discharge order of 2000 mean nothing to these Bad Boys they skate all over the law, break dancing all the way to the bank, giving a high five! Almost 10 years after our discharge we filed a lawsuit in Galveston Texas, in Febuary 2008 against Cenlar Federal Saving Bank, Aurora Loans Services, and Midland Mortgage. The mortgage was sold and re-sold and reported to the credit agency as our live and payable debt. The Federal Trade Commission, Office of Thrift Supervision, Attorney General of Texas could stop these Bad Boys. Whose watching the hen house? A Pack of wolves? We wonder whose SECOND CHANCE is it, our or their’s. Ten years of a zombie nightmare is too long.
June 1, 2008 3:40 AM
mike.martin said:
Make sure you send a letter of challenge to every debt collector who solicits you IMMEDIATELY. Also, send complaints to your state (and the Federal) Attorney General. But yeah — it’s pretty terrible.
June 4, 2008 9:37 PM
JAMES A GREEN said:
Barrett Burke Wilson Castle Daffin&Fappier is finally being looked at by THE EXECUTIVE OFFICE FOR U.S.TRUSTEES and the FEDERAL TRADE COMMISSION(FTC).We made complains to both entity this yr.2008.Our bankruptcy was DISCHARGED IN 2000,Celar Federal savings Bank sold the zombie debt to Aurora Loan Services in 2002,Aurora re-sold the DISCHARGE debt to Midland Mortgage in 2005.It was reported as a Forclosure on our perfect credit by Aurora 2002-2004.All defendents re-aged the debt and reported as a live and collectable discharged debt.We filed a complaint with the OFFICE OF THRIFT SUPERVISION,they and I mailed Midland a copy of the ‘DISCHARGE ORDER’mailing (BBWCDF)4 ATTORNY’S a copy also.Nothing has worked,these are some BAD BOYS!!.It left us no choice but to file a lawsuit and include(BBWCDF)along with all 3 Mortgage Co.The “FAIR DEBT COLLECTION PRACTICES ACT”(FDCPA)should read “FOREVER DOGGING CREDITOR PERSISTANTLY ATTACKING”!!
August 16, 2008 1:26 PM
mike.martin said:
That’s terrible; my sympathies. Best of luck.
August 16, 2008 3:00 PM