Home purchase hit with surprise fee

Q: I'm a single mother, and have worked for several years to save up enough money for the downpayment on a house. I've paid every single bill on time for years now, and my credit score is in the high 700s. However, about four years ago, my now-ex-boyfriend abandoned a car I had helped him buy. My credit was better than his, so we put both of our names on the title and the loan so he could get a better rate and lower payment. When we split up, I took my car, and he took his, and he promised to keep the payments up. Of course, he didn't pay the bill and the car was repossessed.

There is an open but old collections account for the $2,000 he failed to pay. I'm not paying it as a matter of principle -- it is not really hurting my credit score. And I'm pretty sure he's broke, so I can't count on him to pay it, either. However, my mortgage broker says the bank will require the collection account to be paid off before they'll let me buy a home. Is that correct? How can I get around this?

A: My mother once told me that she learned everything she ever needed to know about contract law from "Judge Judy." This irritated me just a tad bit, given that my mother's daughter (yours truly) is a University of California, Berkeley-educated attorney. On the other hand, Judge Judy's no slouch, legally speaking, and her constant stream of "don't lend money to/do business with/co-sign for" your boyfriend advice might, indeed, have helped you avoid your current dilemma.

Mindset Management

Who among us hasn't made a costly mistake in life in the name of love? Think about -- or shall I say rethink -- the $2,000 it will cost you to clear up that collection as tuition: money you'll pay in exchange for a life lesson.

Your mortgage broker is correct, and there's no way to get around paying it unless you're willing to cut off your nose to spite your face -- especially since your name is on the title and the car loan.

Also, consider the value of the closure you'll be gaining. While the collection might not be hurting your credit score too much right now, as long as it's out there, the debt can be sold and resold to new collection agencies -- an infinite number of times.

Every time it is resold, it resets the seven-year duration for which it can be reported on your credit report. Imagine if you go out to buy a car or have your home remodeled and the account has just been sold -- as long as it's out there it has the potential to spoil your plans to use credit unannounced.

That account is also keeping you connected to him, through your resentment and hanging on to your protest, based on "the principal" of the thing. Pay it, get it closed and let it go -- wouldn't you pay $2,000 to get rid of a guy who would treat your financial well-being with that level of disrespect and repay your favor with such contempt? That's exactly what you'll be doing, and getting rid of that force in your life is certainly worth $2,000. ...CONTINUED

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