Homeowners Claim Improperly Reported "Zombie Debt" On Credit Report Prevented Mortgage Refinance; Lost Home To Foreclosure After ARM Interest Reset

The Wall Street Journal reports:

• [E]rica Noe of Burke, Va., says an old debt on her husband's credit file cost them their home -- in part because it prevented them from being able to refinance their interest-only adjustable-rate mortgage last year. Her husband, Kenneth, had filed for Chapter 7 bankruptcy in 2002; in that proceeding, the court discharged his prior debts. Nevertheless, they were unaware that a previous $7,000 credit-union loan remained on his report, pulling down his credit score for several years.

• "We thought that once we filed for bankruptcy, it would go away," says Ms. Noe. "But it didn't. It affected everything." The 31-year-old nurse says they didn't find out about the error until they tried -- but failed -- to refinance their mortgage. When the rate reset, the Noes' monthly mortgage payments shot up by about $1,000; they lost their home to foreclosure last November. "It was a snowball effect," she says. "Unfortunately, everything just kind of worked against us at the same time."

• "I tried to fix the error on the report by calling the credit union and telling them to stop reporting," she says. Currently, their lawyer, Robert Weed, is filing a separate lawsuit against Equifax and the credit union. Equifax declined to comment on an ongoing suit.

Source: Dealing With Debt That Refuses to Die (Court Ruling Requires Credit Bureaus To Wipe Away Bills Incurred Before Bankruptcy; Getting a New Report).

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