Unpayable Small Claims and Mortgages

[Skott]

How much will a $3000 judgement affect my ability to get a home loan?

I was sued in 1996 for $3000 for reasons explained in footnote [1]. Since then, the plaintiff has made no move to contact me for the judgement nor have I been able to contact him. The only contact information listed for him in the county is his P.O. Box and all the letters I have sent have been returned after waiting in his box for two weeks.

Now, it has come time for house buying and this judgement is the largest problem on my credit report. If things continue on as they have for the past six years, the judgement will expire in four more years, but we are looking for a house now. The only other way to clear the judgement is through the plaintiff, which does not look like it will happen.

I was able to get a new car loan through a credit union after showing them proof that I have attempted to resolve the issue. Will mortgage lenders be as understanding as well or will they curtail the amount I am able to borrow, or turn it down completely?


[1]A friend of mine built a computer for the plaintiff for $3000. He then signed the check over to me to help start my business, in which he acted as an advisor. The plaintiff, for reasons I don't understand, became unhappy with his computer and tried to sue my friend, but was unable to find his residence for the delivery of the summons. As a result, he attempted to sue me, but summoned my father instead (Jr. vs. III). My father showed up in court (I was 500 miles away in college at the time) and was informed that since he/we knew that the summons was really for me, and since I didn't show up, the judgement was in favor of the plaintiff by default. The plaintiff and I did not have either a written or oral contract.

[Whack-a-Mole]

I work for a home finance company (although I am their computer guy and know nothing about home finance). I just asked one of our underwriters and she said that most lenders are likely to force you to pay the judgement before they'll give you a loan. The judgement could become a potential lien on the property and the lien becomes a first place debt holder on the property putting the mortggage company second. This is a bad position for the lending company to be in so they will force the issue.

IF you can PROVE to the lending company that you have tried to pay the debt but are unable to this will mitigate your circumstances. Our underwriter said you had better have a good paper trail for this. If not you will have to show the lending company another concerted effort at paying the debt which will take time.

Of course, our underwriter said all this info is simply a gut check and she can in no way know for certain how it would play out till all the relevant info was on paper before her. She did suggest that you try to get a pre-approval for a loan. This is free and will likely highlight any potential issues you might encounter. Getting the pre-approval or not in no way helps or hinders you later. Once you know what issues you are facing you can tackle them at your leisure.

When I bought my house a few years ago they found a judgement against the seller that had been outstanding for 8 years for $10,000. The seller was on her honeymoon and her attorney was handling the closing. Although searches had been done for just this sort of thing twice before they didn't catch it till the third try on the day we closed (and naturally the attorney was unaware of it). The sale was finalized but the title company withheld $30,000 of our purchase price till the issue was resolved (damages can be tripled on unpaid debts). The woman would be coming home thinking she'd have a nice little pile of cash only to find she was $30,000 poorer. NOTE: This was not a lien on the property but the lender viewed it as a potential lien in the future and they won't go there if they can help it. I have no idea how that played out as it wasn't my problem.

[Skott]

Thanks, Whack-a-Mole, for asking for me. I really appreciated it. :)

Originally posted by Whack-a-Mole
IF you can PROVE to the lending company that you have tried to pay the debt but are unable to this will mitigate your circumstances. Our underwriter said you had better have a good paper trail for this. If not you will have to show the lending company another concerted effort at paying the debt which will take time.
Well, the only paper trail I have is the unopened returned envelopes from the plaintiff's P.O. box. Also, I haven't been trying to pay him the full amount. I've been sending him a form (http://www.courtinfo.ca.gov/forms/documents/ej100.pdf) asking that he sign off on full satisfication of judgement other than the full amount.

[jiHymas]

I would suggest going to the lawyer who will handle your settlement (of the house) and paying the amount owed into an escrow account held by his firm.

Trouble is, mortgages are such a commodity-style business that lender's might not want even to look at such a complication - so you might well find that you are forced to deal with your usual bank rather than getting quotes from various places.