Part of what I do as a mortgage advisor is review credit reports — and I’m still surprised how often people think a debt that’s been “charged off” means it’s gone. It isn’t. A charge-off is the creditor writing the debt off their books for accounting and tax purposes — it doesn’t erase what you owe, and it doesn’t mean a mortgage underwriter will ignore it.

A client once asked me to help her mother get a mortgage. A couple years earlier, her mom had voluntarily surrendered a car back to the lender. She assumed that meant a straightforward repossession on her credit report, and that enough time had passed to qualify. What she didn’t realize: the lender had charged off the remaining loan balance after taking the car back, and for mortgage purposes, that balance was now sitting on her credit report as a collection — a separate issue from the repo itself. [Read more…]