Restrictive endorsement

Over the years we have had many people ask us about restrictive endorsements and how they could use this instrument when paying collection accounts and other lenders that have agreed to remove negative items from their credit reports after payment. While we cannot give legal advice, here is some information that we have run across on the internet.

The instrument by which those terms are conveyed is called a restrictive endorsement. A restrictive endorsement is a document drafted by your attorney or yourself and attached to your payment or placed on the back of a check, to inform the creditor that by depositing your payment, he agrees to report the item as you have specified or delete it entirely from your file. The good thing about this method is that it almost always gets the best initial settlement. As much as it rubs the creditor the wrong way, it is still hard for many of them to send the money back. After all, they make money by collecting payments, not by maintaining your credit record. The disadvantage to using this method is that sometimes, the creditor will reject the whole deal and send it all back. Other times, he will go ahead and deposit the check with no intention of changing anything on your credit. As a matter of fact, this happens quite often. The remedy for such action is to file suit in small claims court. As a general rule, mortgage lenders will not honor this form of payment. This method is generally most effective with older accounts that have been reported on your file by a collection agency and accounts that have been charged-off. Most of these creditors have lost hope of collecting any funds and will consider this a windfall.

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