How to correct a credit report

Steve BucciDear Debt Adviser,
After losing my job and suffering a reduction in income, I did not pay my real estate taxes because I could not afford to. I made every attempt to try and pay, but in the end I was told that I owe more in mortgages than what my house is worth. My lenders did not help.

The 1st & 2nd lien holders on my home were sent numerous correspondence about the tax sale, but neither appeared in court the final day.

The judge let the property go and said neither of the banks was present to redeem their interest and forfeited their rights.

The funny thing is that now even after 3 years, the 1st mortgage lender is still reporting me delinquent on the monthly payment each and every month. The 2nd lien holder charged off the loan and sends me "settlement offer" letters each year.

My question is: What can I do to "correct" my credit report with the erroneous information being reported?

Thank you!
-- Debbie

Protect yourself from bad credit by going to myBankrate today, where you can grab your free credit report and check for signs of suspicious activity.

Stressed woman pinching bridge of nose | Tetra Images/Getty Images

Dear Debbie,
What a mess! The mortgage industry problems from years ago still haunt many borrowers today. Yours is a rare and unique example of lender negligence.  Much pain, suffering and money could have been spared if only the lender had been more actively involved. 

2 lenders and delinquent debt

Your current issue as I understand it is with the 2 lenders and the way they are reporting your credit to the credit bureaus. I can see why you would question the continuing delinquency reporting.

Here's why this is happening:

You borrowed money for your home from 2 lenders. Regardless of all that has happened, the loans have not been repaid. So, from the lenders' point of view, you still owe the money and are delinquent. 

Chances are that they will continue to report the delinquency for a 7-year period from the time you first stopped making payments.

Rebuilding your credit can be a long, difficult process when going in blind. Get your credit report and credit score for free at myBankrate.

When debt falls off your credit report

In about 4 years, the delinquencies will no longer show up on your credit reports. From a credit scoring standpoint, the real damage has already been done by the 2nd mortgagee reporting an unpaid charge-off, and even repaying the mortgages will not materially help your credit score. 

Their offer to show your account as paid most likely means they will report your loan as a paid charge-off, not actually a "paid as agreed" account.

However, your problem may not be over yet. Two things may happen in the future. First, the lenders could pursue collection actions to recover their money. If it hasn't happened by now, it may not, but the possibility is still there. Should this happen, you may want to see a bankruptcy specialist and get legal advice.

Forgiven debt counted as income

Second, the lenders could forgive your debts. This would create a situation where you'd be sent an IRS 1099 form for the forgiven debt, and the amount would be counted as income. 

If this happens, you should be able to avoid income taxes under the Mortgage Forgiveness Debt Relief Act of 2007, which has been extended through Dec. 31, 2016. It may be extended in subsequent years.

So, unfortunately, your mortgage delinquency is being properly reported but should resolve itself in 4 more years, when the accounts turn 7 years old and drop off your credit report.

Be sure to check at that time to make sure it happens. If it doesn't, you can dispute the entries, and they should be removed.

Good credit can save you thousands on your mortgage. Check your credit score for free at myBankrate.

Good luck!

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