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What is the statute of limitations on collection accounts for a mortgage
I want to APPLY NOW for a mortgage but have outstanding collection accounts. What is the statute of limitations on collection accounts for a mortgage?
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3 Replies
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It Depends on the state your client is in. Here is the Statues of Limitations for all 50 states:
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Thank you Ali 😊
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Debt recovery procedures are time-limited as these laws set a timeframe within which a debt can be recovered. Most importantly, the lapse of time to initiate proceedings does not extinguish the debt. It simply prevents the creditor from bringing a suit against the debtor after the time has elapsed.
Factors to Notice
Statute of Limitations:
Generally, the statute of limitations on all types of debt contracts ranges from 3 to 10 years, depending on particular state laws and the type of contract. For instance:
Credit card debt: Usually 4 to 6 years.
Medical bills: Often 3 years with a possibility of up to 6 years.
Written contracts: Ranges from 6 to 10 years
Impact On Mortgage Applications:
Credit Score: If the borrower has outstanding collection accounts, it may negatively affect the credit score, which the mortgage lenders must consider.
Debt-to-Income Ratio: Collection accounts will also be a determinant factor regarding your overall earnings, such as the debt-to-income ratio, which lenders use to ascertain the repayment ability of the mortgage.
Reporting Period:
Missed payments leading to collection accounts will be reflected on a credit report for up to seven years. This period starts counting from the first missed payment. Note that this is different from the statute of limitations.
Payment of collections:
First and foremost, please address any outstanding collections before you apply for the mortgage.
How can you accomplish such a task?
Clear off or negotiate the debts. This could help boost your credit ratings.
Make a Goodwill Adjustment Request: Upon payment, you may request the creditors to remove the collection from your report.
Examine your credit report. Please make sure everything on it is correct, and file complaints where necessary.
Talk to the Lenders:
Policies regarding outstanding collections differ from lender to lender. It would be prudent to get a mortgage specialist to explain how your situation would influence your application.
Although the period during which a collector can sue you regarding collection accounts may pass, it doesn’t void the debt that affects your credit score. Dealing with outstanding collection accounts before the mortgage application is imperative as it increases the likelihood of getting approval and even negotiating better loan terms.