Can they do this?

Even if the account is passed SOL, the debt is still collectible. The only difference is the debt collector cannot sue you for the same debt.

And it can remain on your credit report for up to 7 1/2 years.

[SIZE=3]You have a few options available. First, I would recommend saving up a minimum 20% but preferably 25% down payment for any house you are buying. If you have 25% down most banks will over look any blemishes you have on your credit including default accounts. It is pretty easy to get a conventional loan in the 4% range right now with a credit score of 600 or above with out paying any points. In addition, it stops PMI and MIP payments which are a waste of money. [/SIZE]

If you do not have the down payment you can try another tactic. Send RJM a DV letter RRR asking for them to validate the debt including the SOL. While you do that dispute the debt with the CRAs that have record of the debt. In theory, they are supposed to quit reporting the debt while it is in dispute. If you are lucky you can get a window of time where the debt is not reported which may improve your score. In reality, they will probably ignore your DV letter and continue to report which is a violation of the FCRA. You have the option to sue but this entire procedure could take a few months which could mess up your loan timing.

[SIZE=3]The final option is to settle the debt. It might be worth settling if the dollar amount is relatively low and it is your debt even if the SOL has expired. For example, I would not hold up a mortgage over a $500 debt. I would still validate the debt prior to settling to make sure you are paying the correct collection agency and not wasting your money. [/SIZE]

Unfortunately they probably realized you were trying to get a mortgage and threw that debt on your report in an attempt to collect. If you do not have the down payment then the banks will make you clean your credit before writing the mortgage. In my opinion, CA???s know this to be a common practice and use it to their advantage.

I hate to disagree, but I see mortgage rate sheets daily and there is no way that someone with a 600 FICO would get a 4% rate no matter what their downpayment is. They could definately get a mortgage with 25% down, but it certainly wouldn't be at 4%.

And that would be great if people had 20-25% down, but very few people can save up $50k before buying their first house. It's pretty rare - happens but is very rare. Especially since most mortgage payments with the FHA minimum of 3.5% down are at or equal to rent, it doesn't make a lot of sense to wait to buy and get the tax benefits and housing payment stability that purchasing gives you.

I do not watch mortgage sheets daily but I am currently going through it. My current score is slightly over 600. I have two defaulted charge offs on my credit report that were disclosed in the loan documents. My closing is schedule tomorrow at 3:00 pm for a refinance. I have 25% equity. My mortgage broker stated that the 25% equity changed the bracket of risk which changes the rule structure. My rate was 4.25% but they dropped it to 4.125% because the bond rate changed. I am paying no closing costs, no points, no PMI, no MIP. I am borrowing around $250 more than my current principle due but I am getting it back in a check. I am not refinancing any additional costs.

I suppose it is possible that a new mortgage might fall under other rules but I am still pretty confident that the 25% down makes a huge difference and would cause banks to overlook imperfect credit. The reason is that 25% reduces the risk the banks are taking. It is less likely a person will default on a home when they have invested that much equity and the home value has not plummeted.

I would never recommend to someone to borrow more than the 80% of the home value and to not spend more than 25% of their take home pay on it. It is cheaper to rent and there is no risk. Homes cost a lot more money to get into and upkeep. Stuff breaks and you can???t call the landlord. In addition, if you borrow more than 80%, MIP costs a few thousand up front plus the monthly PMI payment of $50-100 bucks. Part of the reason this country is in a financial mess is because banks were loaning 100% home value and greater and people are defaulting now for whatever reason. This has caused an increase supply in homes for sale which has caused home values to stagnate or in some areas drop.