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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2017

Stay on the Straight and Narrow With Credit Repair

Avoid illegal practices when fixing tarnished FICO reports

There is a very narrow path in the law when it comes to credit repair, which is the process of changing or deleting derogatory items on credit reports in order to raise FICO credit scores.

The language of the federal law dealing with credit repair could lead many borrowers and mortgage originators to conclude that much of what passes for “credit repair” in this country is outlawed. That isn’t the case. There are clear distinctions between the legal and illegal courses of action in credit repair. Wise originators will learn where the lines are drawn in the credit-repair process so they can help borrowers with credit issues to resolve them legally and pursue the American dream of buying a home.

Outside the law

No matter what some credit-repair companies say in their radio or cable TV ads, it is not legal to “dispute” an accurately reported credit item. The Fair Credit Reporting Act simply does not grant consumers the right to dispute all negative credit items.

It would be logical to conclude that the credit-repair industry has been essentially legislated out of existence by reading the following language from the Credit Repair Organizations Act:

“Prohibited Practices: (1) make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit-repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer’s creditworthiness.”

To dispute is to question the truth or validity of something. The law makes it illegal to dispute a credit item that is accurate — but that does not include entries that are obsolete. An obsolete credit entry might be one that is past the statute of limitations for credit reporting, for example.

The burden of proving that a negative credit entry is invalid, however, falls on the challenger. It is not the job of the consumer-reporting agency or the data furnisher to prove a claim is valid just because it was challenged. Deceased Supreme Court Justice Antonin Scalia would have called that kind of thinking “interpretive jiggery-pokery.”

Lawful credit repair

Lawful credit repair deals in truths and not deceptions, schemes, lies or trickery. Such schemes can be violations of federal bank-fraud law. Lawful credit repair makes use of the law and the truth to get results.

A debt collector that agrees to delete a negative credit entry and provides a Letter of Deletion based on the case presented by the debtor is an example of lawful credit repair. This should be accomplished by appealing to the truth, and avoiding deception.

Asking to present the evidence of credit-entry error to managers with decisionmaking authority can be one legal path to success in correcting problems in a credit record. Proving the collector sent notices of payment due to a wrong address is another path to success. Catching a debt collector engaging in an act that violates the Fair Debt Collection Practices Act or the Fair Credit Reporting Act (or similar state laws) and using that as leverage to press for the deletion of a negative credit item also can be a winning strategy.

Other scenarios

When a bank has initiated a wrongful foreclosure or unlawfully declined a loan modification in violation of law or committed some other detectable violation of the rules, there are mechanisms to get the negative credit items related to those actions off of a credit report. The process starts by retaining a highly reputable company to undertake a forensic audit in conjunction with hiring a lawyer who is experienced in using audit conclusions.

When a court orders a judgment to be set aside or vacated, then that judgment no longer exists and should not be part of a credit report. In such a case, the court order can be used as evidence to facilitate a rapid rescoring or valid disputing of the judgment on the credit report.

On yet another front, debtors can find themselves dealing with a default judgment because they were not served proper notice of the lawsuit and hence did not show up in court. If such a judgment was discovered within the statute of limitations, a lawyer can be retained to draft a motion to set aside the judgment.

The debtor, or a lawyer, can then file the motion with the court, serve notice to the proper party and a hearing date will be set. The debtor or lawyer can often get the judge to set the judgment aside, and the parties can settle the debt out of court.

•  •  •

Many credit-repair solutions require a major commitment of time on the part of the consumer seeking to correct the record. They also can be expensive. Consequently, there can be a temptation to take shortcuts that go outside the lines of the law.

Mortgage originators should encourage their clients to avail themselves of all legal means to repair their credit and increase the odds of qualifying for a mortgage. They also should counsel clients against taking an approach that might skirt the law, because the consequence of such a course is usually failure and an even uglier credit score, or worse.


 


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