Thank you for your inquiry. 

There are several steps you can take:

1. You can also file a dispute with Equifax informing them that you do not owe this debt. You will need to include your Equifax credit report number, item number, and any other information you have to support your dispute.  Equifax then has thirty days to investigate the item. If it cannot be validated it must be removed from your credit files. If they validate the debt, you still have the right to send a letter of explanation to Equifax that must be attached to your credit files.  This won't help your credit score, but it may be helpful for a lender to see.  You can review the complete dispute process, by letter or online, at the following link:
   
   http://www.creditlearningcenter.com/display.php?content_id=76
   
   
2. You can contact the collections agency and make them validate the debt. (Provide related documentation on why you feel you do not owe the debt, information on how the hospital mishandled your claim, sending it to the wrong carrier, etc.) They then have thirty days to validate your debt under the fair debt collections practices act (FDCPA) If they cannot validate the debt, proving that you owe the money, and showing that the original documentation on why you owe the debt, the item must be removed from your credit files. 
   
   If a creditor can't validate or verify a debt, they are not allowed to collect it; They are not allowed to contact you about it; and They are also not allowed to report it to the credit bureaus under the Fair Credit Reporting Act (FCRA). If they do this, they are in violation of the FCRA, and the FCRA states that you can sue for $1,000 in damages for any violation of the Act.
   
   Here is an opinion letter from the FTC  which communicates that a collection agency may not report a debt to the credit bureaus which has not been validated:
   
   http://www.ftc.gov/os/statutes/fdcpa/letters/cass.htm
   
   
3. If the debt is validated, we would suggest you contact the original creditor, in this case, the hospital, and insist that since it was their mistake initially, they resubmit your claim to the proper carrier.  To accomplish this, you will likely have to talk to a high-level supervisor or management person and plead your case.  Let them know you are the wife of a serviceman serving the country and their error has caused you harm - in this case lowering your credit score at a time when you are purchasing a home.  If the hospital then intervenes on your behalf, resubmits your claim and the proper carrier then settles the claim, you can then request that the hospital that treated you initially send you a letter acknowledging that the claim has been paid by the appropriate insurance carrier. The hospital will still need to work on your behalf to make sure the collections agency that works with them, or purchased the debt, removes the negative item from your report.

There is no easy course of action here.  We have given you the steps that we would recommend in order that we would take them.  Please understand that this is not legal advice.  Every situation is unique and individuals should seek legal advice to make sure that get the best advice under the law considering all the facts in this situation.

You will have to be persistent in standing up for your rights under the law.  Finally, it is important to point out that negative items must be removed from your report after seven years (10 in the case of bankruptcy).  We would not encourage you to pay money that you do not owe.  Many people do this believing it will increase their credit score. The fact is, in doing so, you will be acknowledging the negative item, "resetting" the seven year clock, thus causing the negative item to be on your report for a longer period of time.

We wish you success in this matter.

The CLC Help Center

As a licensed mortgage broker, if you were my client; I would tell you to pay this if you want to buy the condo. You can call the orignial creditor and they usually will accept less money, since insurance companies don't pay what they are billed. Your mortgage broker, once you have paid this can have your credit updated to show zero balance and have your credit rescored. It may help your score and it may not, but long term it will help your score go back up and time will heal your credit. Unfortunately, without knowing what your credit score and other credit is, I don't know know if this collection is affecting your interest rate, down payment, and fees.

Unfortunately, this is a lesson in life to make sure your bills are paid in a timely manner by the insurance company. Always follow up with the service provider (hospital); making sure that you have a zero balance and that your insurance company did indeed pay what was covered/ owed to the provider. Human error is to be expected, being proactive will prevent this from happening in the future.

Good luck,

Your Friendly Mortgage Broker