Highlights from the Dave Ramsey Show

QUESTION: Brian in Indiana lost his home a few years ago after a foreclosure. Their foreclosure was found to be illegal because the foreclosure itself was not notarized or witnessed. He wants to know what steps he can take to get it removed from his credit score. Dave walks him through the process.

ANSWER: There is a lot of stuff going on out there about illegal foreclosure, and a lot of talk about it. You owed the money and didn't pay it, so to say that this is a technicality is an understatement. You may be able to use it to get the foreclosure off of your credit, and you may have to explain it several times in the future.

Basically, let's say anything that's on your credit report is a mistake, which is where we'd qualify this if it is declared to be an illegal foreclosure. If there is a mistake on your credit bureau report, you would write to each of the three credit bureaus (Equifax, TransUnion and Experian) and say this item is incorrectly entered. It's a mistake.

According to the Federal Fair Credit Reporting Act, they are to investigate, and if they cannot hear anything from the other side, or if they hear an agreement from the other side that is was a mistake, then they are required to remove it within 30 days. I recommend you send the letter by certified mail, return receipt requested, so you have proof of delivery to the credit bureau.

State in the letter that they have 30 days by federal law to prove the accuracy of this item or remove it. Tell them it's not accurate and they have 30 days ... ready, set, go. You will contact them in 30 days, and if they haven't proven it by then, they have to remove the item. That's how you get any item off your credit bureau report that is an inaccuracy.

The temptation in something like this is to try and make a court case out of it and send them all the documentation and all the reasons why this was an illegal foreclosure and here's the copy of the settlement and all that kind of stuff. I really wouldn't get into all of that. You are going to confuse people at the credit bureau.

They are not there to make a judgment about the case. Either this is a mistake or it isn't. Either they respond from the bank in 30 days or they don't. You need to be very careful going forward when you sign anything that asks if you've been through foreclosure. Even if the foreclosure was deemed to be illegal, you have been through foreclosure.

The answer would be yes, then you'd put an explanation that it was illegal. But yes is the correct answer. Don't put no on there. That would be falsifying information to get money, which is known as fraud. Always answer yes, but if you get the opportunity to explain what happened, maybe you can explain it away.

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Question: Mike in New York lost his job about three years ago and fell eight months behind on his mortgage payment. He got another job and is trying to catch everything up. He sends full payments along with partial ones to make up for the amount that he's behind, but the bank has been returning those. Now they are starting the foreclosure process. What should he do?

Answer: I would call them back and have this conversation: You have been trying to work this out and do not want to go through the modification process. You simply want to catch it up. You don't have the $12,000 you need today.

You talked with your financial counselor, which is me, and he suggested a forbearance, which is a workout plan. Your proposal is to give them $6,000 today and then make double payments until the other $6,000 is caught up. I will bet that you can get them to do that.

What you could do while you're messing with them and negotiating with them, you might be able to save up the other $6,000. Start the negotiation with forbearance, and then tell them your financial counselor said they should do this because you're making $130,000 and you can show them that.

Tell them there's a valid reason why this won't reoccur. It was due to a drop in income from your layoff. The income has now returned and you were a good customer before and you'll be a good one again. You are basically making a sale here.

You are convincing them that if they grant this one act of mercy, that it's going to be good business for them. But if you talk to them about it for two months and mess with them, save up the money while you talk to them. Up until the foreclosure, you can completely catch them up. If they stop taking your regular payment, pile that up in that account as well because you'll need to catch that part up as well.

Don't let this slip away from you by any stretch of the imagination.

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