A Study in "Credit Repair"

The following three letters were written as part of an actual "credit repair"undertaken to help a young working couple with three minor children purchase their first home. This couple, whose names, for reasons of privacy, have been changed here to "Bob and Janet Smith" entered into a "Lease with Purchase Option" contact in April 1998 to buy a Wind & Rain 4BR/2BA house. They took occupancy of the house and entered into an accredited "credit repair" program. Everyone thought that after two years they would be ready to complete the purchase option, even with Bob losing his security job for two months, during which time he went back to school and upgraded his rating. But then First Union ran a credit check on the Smiths and discovered that they now owed $33,000--which was much more debt than they had started with two years before. Either the Smiths were lying or something was really screwed up. Read on.

Letter No. 1

March 1, 2000

Mr. Anthony M. Riggio
Vice President
Community Development Lending
First Union National Bank
2400 East Atlantic Blvd. , 2nd Floor
Pompano Beach, FL. 33062

RE: Bob and Janet Smith

Dear Mr. Riggio:

First, let me thank you for taking such an active interest in this home loan application. I know my persistence has bordered on the obnoxious, for which I apologize for the form but not the substance.

I've always thought there was something not quite right with the Smith's file. After two years of working closely with Bob and Janet, I've found them to be decent, honorable people trying to raise a family on limited means, while pursuing their dream of owning their own home. They've made some mistakes for which they have paid dearly. Let's now go through the six page attached "Southern Mortgage Reporting Inc." report that your loan processor Ms. Roberts sent me today:

The credit report paints a grim picture of chronic credit delinquency with "too few accounts currently paid as agreed." How can this be when the Smith's have faithfully paid me $750 per month rent every month since April 1998 when they entered the "Lease with Purchase Option Agreement" AND have been in "credit repair" with the credit counseling agency(see attached letters)? Admittedly there were some months in 1999 when the Smith's stopped the "credit repair" payments but, they maintain, it was because they were told they were finished. Miscommunication? Misunderstanding? or falsehood? Let's go on.

There is a debt of $14,600 owed to "Emergency Physicians". Bob believes the origin of this was a broken wrist suffered by their oldest son who was taken to Miami Children's Hospital-- where both Bob and Janet were employed with health insurance at the time. I will check this out. Let's go on.

( Name Deleted) Condominiums says the Smith's owe them $9,400. Has anyone checked with the State of Florida about this outfit? Here's what Bob tells me they do. They get families like the Smiths with kids to come to Disneyworld by luring them with discount tickets. Then they do "seminars" to show these families how much they'll save every time they come back by buying a "time share condominium." The Smiths are not proud that they paid the $600 down payment, or several monthly payments after that, but I told them they should be proud that they had enough common sense to stop paying.

The next items, Capital One Bank, Franklin Acceptance, BCA/Nationwide, and Mervyn's are all legitimate--the Smiths do not dispute that these loans went bad when Bob lost his job in late 1994 and they "lived on credit" until they couldn't pay any more. But even here, appearances are deceiving. For example, according to the credit counselor's letter dated 3/08/99, the Capital One debt was down to $2418.90 (estimated) not the $5307 shown in the report.

Plus, the Smiths are still paying it down under "credit repair" at $125/month. Mervyn's went out of business--not an excuse but the credit counselor's letter of 3/08/99 shows Mervyn's as "REPAID." Same with BCA/Nationwide for the Southern Bell charges incurred back in '94-'95.

The one that doesn't smell quite right is the Franklin Acceptance debt of $16,800. The credit counselor says the Smiths still owe either $1,500 or $986 depending on which letter you're looking at. Bob says the car that he bought (and which was repossessed) was a used "94 Ford Taurus. He thinks it cost around $10,000 and that he traded in his old car and paid $1,500 down. I don't have a "Blue Book" from 1995 or 1996 when Bob bought the car, but I have a strong suspicion that if we ever could get the original paperwork we would find that the $16,800 figure shown in the Southern Mortgage Report is a "grossed up" amount including all interest and penalties. and excluding the trade-in and the amount for which the repossessed car was then re-sold. I can't prove it but will try if I have to. In any event, the Smiths are still paying this off at $100 per month.

In summary, what do we really have after pealing this onion? We have a family that has avoided taking out any credit of any kind since the unfortunate period of 1994-1995 when they made some bad mistakes and, I think, some people took advantage of them either inadvertently or on purpose.

They haven't even had a phone since then while they've been trying to resurrect their credit and buy a home for their family.

I think four years is enough penalty for the Smith's mistakes. They really owe less than $5,000. I don't expect the Condominium or "Franklin Acceptance" to come looking for what they claim they're owed, especially if someone is going to aggressively dispute their claims--which I would on the Smith's behalf. I would take it personally, especially because I know that if I had taken this kind of hard look at the Smith's credit report two years ago they would already be homeowners.

Thanks again for taking the time to look into this. Everytime I think this "affordable homebuilding" is just too difficult, I remember what Sir Francis Drake said to Walsingham: "There must be a beginning of any great matter, but the continuing unto the end until it be thoroughly finished yields the true glory."

Maybe that goes for smaller matters, too, like getting the Smiths into their very own home.

Sincerely,

Anthony R. Parrish, Jr. President



Letter No. 2

March 6, 2000

Mr. Anthony M. Riggio
Vice President
Community Development Lending
First Union National Bank
2400 East Atlantic Blvd. , 2nd Floor
Pompano Beach, FL. 33062

RE: Bob and Janet Smith

Dear Mr. Riggio:

Since my letter to you dated March 1st, I have been doing a little "credit repair" investigation of my own on the Smith's file. Here is what I've turned up so far:

Item 1. Original Creditor: Emergency Physicians; Original Amount $14,600.

Fact: This account was paid in full with a payment of $146. The $14,600 is a "computer glitch"--i.e. they forgot to put in the decimal point.

Item 2. (Name Deleted) Timeshare Condominium. Original Amount: $9,891. Balance owed: $9,400.

Fact: I have written the company and have received no response yet. I have asked Legal Services of Miami (John Little, Esq.) to have this item removed from the Smith's file altogether.

Item 3. Capital One Bank. Original amount: $3,835. Balance owed: $5307.

Fact: The Smiths have been paying on this account but it keeps going up because the interest rate is 22.19%!!!!! The collection company has offered a cash settlement of $2,692.88 (see attached letter).

Item 4. Franklin Acceptance. Original Amount $16,800. Balance owed: $4,098.

Fact: The Smiths purchased a used Ford Taurus on 1/30/95. They paid $1,500 down and were credited $300 for their trade-in. The amount financed was 11,666.87. The car was repossessed in 4/96 and the Bank was credited $6765 on the re-sale. The original deficiency was $4790.05. Franklin has offered a cash settlement of $2,350.

I am meeting tomorrow with the Smith's Bank, Coconut Grove Bank. I am going to ask the Bank if it will loan the Smiths enough to pay off both cash settlement offers ($5,042.88).
If all that's left is this new loan and the (Name Deleted) Condominium item (which may take a while to get rid of), will that be sufficient for First Union National Bank to make the Smiths a first mortgage loan of $54,400 at $9.25%? It would be on a $94,900 4BR/2BA house with a $40,000 "soft 2nd" mortgage at O% and $0 per month behind the First Union loan.

Thanks for all your help with this. I think we are getting close to showing that the Smiths have been telling the truth all along and that the system has not been functioning as it should.

Sincerely,

Anthony R. Parrish, Jr.
President



Letter No. 3

March 8, 2000

Mr. Anthony M. Riggio
Vice President
Community Development Lending
First Union National Bank
2400 East Atlantic Blvd. , 2nd Floor
Pompano Beach, FL. 33062

RE: Bob and Janet Smith--Ready for Loan Approval NOW

Dear Mr. Riggio:

All of the negative items on the Smiths are now resolved as follows:

1. Emergency Physicians. Balance $0. All we are waiting for is for TRW and Transunion to put the decimal point in the alleged $14,600 and show that the Smiths have paid the $146.00 in full--which they did last year.

2. (Name Deleted) Condominium Time Share. The company is sending me a letter today stating that the balance due is $0.

3. Capital One ($5307) has agreed to a cash settlement of $2,692.88. Franklin Acceptance ($4,098) has agreed to a cash settlement of $2,350.00. Coconut Grove Bank is loaning the Smiths $5,000 on Friday and will pay off both of these creditors. The Smiths will then repay Coconut Grove Bank at the rate of $105.00 per month.

This completes ALL of the items on the Smiths credit report.

I hereby request, on the Smith's behalf, that we begin the process of scheduling the Smiths for their house closing ASAP. I have already spoken to Carmen Sanchez at City of Miami and she said the City can fund their "soft 2nd SHIP" $40,000 loan in about a week. I sincerely hope First Union Bank will expedite their funding of the 1st Mortgage of $54,400.

The Smiths have waited two years, and have done everything asked of them. They have suffered from lackluster "credit repair" as well as everyone, including me, doubting their integrity. Let's all make amends by getting them into homeownership before another month goes by.

Sincerely,

Anthony R. Parrish, Jr.
President

POST SCRIPT: On June 21, 2000 the Smiths finally closed on the purchase of their Wind & Rain home and became homeowners at last. Northern Trust Bank ended up being the first mortgage lender, not First Union, with the City funding $40,000 in a "soft 2nd" mortgage. Was it worth all the effort? You bet. Are there many more people like the Smiths caught in the "debt trap" with everyone piling on? Undoubtedly. Can we all do better? We have to.

2ND POST SCRIPT: I must sadly report that on May7th, 2002 the Smiths sold their house for $115,000. Even though the sales price was $21,000 than the price they'd paid just two years before, it was a sad day, since the sale was "in lieu of" foreclosure. The Smiths had forgotten the financial discipline so painfully acquired and had purchased a new car with a monthly payment almost as much as their house payment. The Smiths fell behind in their mortgage payments, so much so that the first mortgage lender felt it had no choice but to initiate foreclosure proceedings. This was Wind & Rain's first (and to date, only) failure in finding, qualifying and making new homeowners out of lifetime renters. It is painful, after all the effort, to be forced to realize that the Smiths were just not ready to become homeowners. From the outset, they had been extremely passive, almost fatalistic, about their credit problems, valid or invalid as detailed above. If they had told me about the automobile purchase, I would have tried to talk them out of it, and maybe that would have meant that they would still be homeowners. But in the end, becoming a homeowner has to include a certain level of responsibility, and not everyone is ready no matter how much help they receive.



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