In 2005 I started working for a mortgage company as a wholesaler. My job involved calling on mortgage brokers and trying to get them to write loans through my employer. It was an eye-opening experience for a number of reasons:
I realized that there were some really credible, integrity filled people in the industry and there were others who didn’t fit in either bucket.
It became painfully obvious that a majority of the applicants had credit that needed serious repair.
I learned SO MUCH about debt, collections, and adverse entries on your credit report.
One of the most common items on a credit report in need of repair was a reported collection item. Collections occur when you’ve gone a period of time without making a payment on a debt, have an unpaid fee or fine, or missed a bill. Typically, an account goes to collections after somewhere between 90-120 days late on payment.
One particular vendor showed up on credit reports over and over again, and I quickly found out it was a company that bought “aged” medical debt from medical practices, hospitals, surgery centers and clinics. An “aged” debt means the invoice had been on the practice’s books for 3 months or longer and instead of attempting to collect on the debt, the practice sold the debt to the collection agency for pennies on the dollar.
What often happens is the practice charges a certain amount for a service — typically inflated to make sure they get all they can from the insurance company of the patient. The patient is responsible for a co-pay, and sometimes the difference between what the insurance covers and what the doctor charges. That difference can often go for a month or two before being invoiced and eventually goes on the practice’s aging report.
In a surprise twist to the story, this particular company had an office around the corner from my office and I would see the folks who worked here head out for their smoke breaks multiple times a day. On more than one occasion, I stopped to chat up these folks, hoping to get an inside peek into how they operated.
Here’s what I found out — the debts they acquired often had no paperwork attached to them. Meaning if you had gotten an x-ray at the doctor’s office and didn’t pay on the bill for some reason, this company would buy that debt for about 10-20% of what the face amount owed was. (A $500 debt they would acquire for $50-100 and attempt to collect all $500.) The issue for them was if they didn’t have the corresponding paperwork for the debt, it could be challenged as a non-viable debt. According to the Fair Credit Reporting Act, if the debt couldn’t be verified with original paperwork (like a signature from the patient or borrower), the creditor had 30 days to remove it from the credit report.
What I witnessed from my mortgage clients was an urgency to get the collections paid off so that they would be cleared from the credit report and hopefully trigger a higher score. Many could have done one of two things:
Challenged the debt itself by writing a dispute letter (similar to the one available below) and seeing if the creditor actually has the paperwork. If not, the debt would be cleared. Negotiated the collection down to maybe 30-40% of what the original amount owed was. If the collection agency settles the debt and gets paid, they’re still making money on the original amount they paid. Any amount collected over their expense is a win.
Understanding the collection industry allowed me to play the game the same way they were playing it when assisting clients.
In one such instance, a client had an $800 collection from a credit card he’d opened while in college. It was far enough in the past that I was certain there would be no more paperwork on file to show that the card was his, that he’d actually spent the money, and that he should be on the hook for it. (Candidly, he’d told me he settled the debt years before and this never went away — I took the client’s word for it and fought the debt.)
When calling the collection agency, I inquired about the paperwork they had on file for this particular debt as there were plenty of people with a similar name as my client and he was sure the debt wasn’t his. One of the things you’ll find out is the folks who work at these places take great pride in collecting the debts no matter what. We eventually sent in the dispute letter and had the debt taken off his report altogether. His credit score jumped within a month once the collection and corresponding debt was erased.
When you know about collections and the inner workings of the industry, it makes it significantly easier to deal with the players, both good and bad. Whatever you do, don’t bury your head in the sand if you’re facing collection accounts of any kind. Face them head on with someone who knows their stuff and understands how the game is played.
