The Risk of Aiding Credit-Challenged Clients
When a legal issue or tax problem arises during a real estate transaction, REALTORS® are required to point their clients in the direction of a lawyer or competent CPA.
By Nabil Captan
When a legal issue or tax problem arises during a real estate transaction, REALTORS® are required to point their clients in the direction of a lawyer or competent CPA. But what’s to be done with credit-challenged clients?
REALTORS® often are not sure where to send clients who have negative credit histories or have defaulted on previous mortgages. Although they can offer several options, those may not adequately meet their clients’ needs.
Most REALTORS® heavily rely on lenders to help their credit-challenged clients resolve disputed entries or improve their credit profile—but that will never happen. Lenders are not in the business of credit repair—period. Some independent mortgage brokers provide help using a what if tool (moving around or paying down revolving accounts) to boost credit scores, a process homebuyers could and should do on their own and before giving permission for any credit mortgage inquiry.
Some REALTORS® send clients to credit counselors, who offer limited financial help. These nonprofit agencies are in the business of examining people’s expenses against their income to determine if debt management plans can help them reduce or eliminate their obligations. Most of their well-intended counselors aren’t adequately equipped or properly trained to provide credit management workshops, and they’re often misinformed. For example, I saw a counselor from a well-respected nonprofit organization suggest an attendee pay off a collection, send the receipt to the three credit reporting companies as proof of payment, and demand immediate deletion of the item—a process that doesn’t work.
Surprisingly, even financial advisors, CPAs, and divorce attorneys are sorely lacking when it comes to offering appropriate credit advice. Again, they’re not trained to help their clients understand what their credit profiles are all about.
And of course, there are the credit repair services. Many REALTORS® ask me if I can recommend a good credit repair company. That’s like asking me to suggest a healthy cigarette brand. There are none!
Credit repair services have the highest risk to REALTORS®. They promise deletion of accurately reported information and require advance payment—and under federal law, it’s illegal for anyone to charge for credit repair until the repair is completed. These companies (and attorneys who engage in credit repair) camouflage advance payment as a consultation or application fee rather than a credit repair fee.
Furthermore, when a credit repair company succeeds in deleting accurate information, lenders are always involved, and everyone knows they helped perpetrate fraud. The person who sent the client to the company is also on the hook—so REALTORS® need to be very careful about referring or suggesting such services.
What Can REALTORS® Do?
Homebuyers today have instant access to answers fraught with false claims. It appears that REALTORS® don’t have a choice; they must provide appropriate direction. It’s very important.
The good news is the knowledge is free. Homebuyers don’t have to part with one penny to improve their credit files. And REALTORS don’t need to become experts in credit scoring and credit repair. Instead, they can begin by suggesting their credit-challenged clients get help by visiting websites such as the Consumer Financial Protection Bureau (www.consumerfinance.gov) and the Federal Trade Commission (www.ftc.gov). These websites provide truthful answers absolutely free, be it understanding a financial concept, settling a dispute, gaining access to useful tools, submitting a complaint, or merely improving financial literacy.
Additionally, when clients’ questions are credit score-specific or about ways to improve their scores, www.myfico.com is another great website to recommend. It has hundreds of pages of educational content, is free, and is presented by the inventor of the FICO® score—so why not go straight to the source for reliable and accurate information?
Lastly, clients with unsettled disputes who don’t know how to proceed should be directed to call the Consumer Financial Protection Bureau at 855-411-2372 or 202-435-7000 to gain direction on submitting complaints. The CFPB promises to get an answer within 15 days—a cause for celebration given the typical lag time for getting through bureaucratic red tape.
To sum up, REALTORS® do have a responsibility to steer credit-challenged clients toward reputable organizations that can truly provide them with the help they need to enhance their credit standings. It’s important to be cautious about making recommendations, however, because there are many options that are disreputable—and no REALTOR® wants to be associated with such organizations.
Nabil Captan is a national trainer and credit scoring expert. For more information, please visit www.nabilcaptan.com.
Reprinted with permission from RISMedia. ©2014. All rights reserved.