Medical Bill Mix-Up

Dear Dr. Per Cap,

My husband and I are interested in purchasing a new home through the HUD-184 Native American Mortgage Program. We both have good jobs and have always worked hard to maintain our credit, but when I pulled our credit report last month it shows a $1,500 outstanding medical collection. It’s from the private hospital where our daughter was born two years ago. Indian Health Service had originally told us they would pay it, but now they’re telling us they can’t. We can probably afford to pay it if necessary, but it’s just not fair.  I’ve heard an unpaid collection like this will prevent us from qualifying for a mortgage. Is that true?

Mixed Up

Dear Mixed Up,

I feel your frustration, I really do. I assist a lot of Native families in New Mexico who have credit issues, and I can tell you that a large number have medical collections from Indian Health Service referrals or non-IHS emergency room visits that don’t get paid.  It’s nothing personal. But sadly with fewer federal dollars going to fund Indian health every year, IHS in some states just doesn’t have enough money to pay all of its bills. It is not always the fault of IHS – it can also be the patient’s responsibility to notify IHS of an impending bill in a timely manner, such as the 72 hour deadline for reporting a non-IHS ER visit. But problems with IHS do happen, and it is important to know what to do to fix it.

I agree that it is not fair that you and your husband should have to pay that $1,500, and fortunately you probably won’t have to.  Unlike a conventional mortgage (in which pretty much any unpaid collection will result in a denial) the 184 loan is a lot more lenient when it comes to medical collections. So here’s what you need to do: contact either the billing department at your IHS service unit or its Contract Health Services department and request Proof of Third Party Responsibility. This will usually be in the form of a letter from IHS stating that it is responsible for your debt but it is unable to pay due to a lack of funds.

Upon furnishing this document the underwriter will disregard the medical collection account from your mortgage application, and provided there are no other credit issues such as recent late payments on credit cards, high loan balances, or any outstanding non-medical collections, the credit piece of your application should be strong enough to get the green light. Now bear in mind that the medical collection account will still be listed on your credit report so be sure to send copies of the IHS letter to the big three credit bureaus (Equifax, Experian, and Transunion) so they can include it as a consumer statement on your credit report. That way if you later apply for, say, an auto loan or credit card, a lender can fairly acknowledge the situation and hopefully disregard the delinquent account.

On a final note, there’s a lot more to buying a home in Indian Country than just having good credit. You might also need to consider stuff like land and title documents from the Bureau of Indian Affairs, tribal enrollment status, and insurance, to name a few. There is too much detail to go into here, but I will talk more about those things in a later column.

For now good luck with the home purchase, and make sure you invite me to your housewarming party!

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. This content does not constitute professional and/or financial advice, and Dr. Per Cap is not a licensed investment advisor. To send a question to Dr. Per Cap, email