Assignment is the foundation of the debt-buying industry, and the industry is built on sand. Or a swamp. Because assignment is also the industry’s weak spot, and the reason why most—if not all—debt-buyer lawsuits should fail.
Debt buyers must prove they have the right to collect a debt. To do this, it must show an unbroken, valid chain of assignment back to the original creditor. Most debt buyers cannot do this.
The Smoking Gun (Or the Lack Thereof)
Think of a chain of assignment like a chain of evidence in a criminal case.
In order to connect the smoking gun to the crime scene, the police and prosecutor must be able to account for its whereabouts at every moment from the time the detective put it into an evidence bag at the crime scene to the time it is shown to the jury during trial. If they lose track of it, the evidence is no longer reliable. In order to prove that the gun in court is the same one found at the scene, everyone who was in possession of the gun must come into court to testify, from the detective to the forensics expert to the guy in charge of the evidence room.
The same thing has to happen with a debt. The evidence of the debt is the smoking gun, and the contract from the original creditor to a debt buyer (and from one debt buyer to the next) proves where the debt came from and where it has been since then.
Debt Buyers’ Proof Problems
Debt buyers definitely could prove up the chain of assignment; it just goes against their business model. That business model is to file thousands (or tens or hundreds) of lawsuits without checking to see whether those lawsuits have merit, and hoping to intimidate most consumers/defendants into paying up without asking any more questions.
And most of the time that is exactly what happens. The business model works. But most consumers should actually win their debt buyer lawsuits because the debt buyers in those cases have not and cannot produce any competent evidence to support their claims.
The evidence problems start with the original creditor. Until recently, few kept copies of credit applications with the consumer’s signature, or even a complete set of account statements. Some creditors have improved their record-keeping, but those records rarely travel with the debt as it is bought and sold. That means debt buyers generally do not have those records when they collect on the debts, and most file lawsuits without ever bothering to get this basic evidence.
In part, this is because requesting proof before starting a lawsuit would probably slow down the debt collection gravy train. Also, the debt buyers might actually have to pay for that proof out of their own pockets, which would add expense on top of delay.
But even if debt buyers did spend the money and take the time to get the evidence from the original creditors, there remains the problem of proving its whereabouts from the time the original creditor sold it (think: detective picking up the smoking gun from the crime scene) to the time it wound up in court. It’s highly unlikely that the original creditor and the debt buyer who started a lawsuit are the only two companies who had the debt during that time.
The (Faulty) Paper Trail
Generally, debt buyers produce only a bill of sale as their “proof” of the sale. However, the bill of sale is a generic document that never mentions the debt at issue. That makes it no good proof of anything. What the bill of sale generally does is refer to an exhibit with the list of accounts sold—which is never attached. At best, a debt buyer may produce a single line printed from a spreadsheet (the exhibit is rarely an actual document).
A chain of assignment generally needs to show who/what was transferred and to whom/to where it was transferred. Debt buyers typically purchase debt in bulk—hundreds of accounts at one time.
For example, the bill of sale typically says “Creditor agrees to sell all accounts listed in Exhibit 1 to Debt Buyer.” Exhibit 1 is usually an electronic file that contains of hundreds or thousands of accounts and account information.
When challenged on whether a debt buyer owns an account, a debt buyer will typically produce a one-page redacted spreadsheet that is usually titled Exhibit A. The only viewable information will be the alleged account at issue. It will generally look like a spreadsheet that a five-year old could generate on an iPad.
Are you paying attention? The bill of sale referenced Exhibit 1, and the document produced was titled Exhibit A. On that basis alone, you can argue its not the same document.
Perhaps more importantly, the document produced is maybe 1% (that’s being generous) of the actual Exhibit 1. You’ll never know what the actual file looks like, because they will never produce it. According to them, its a trade secret.
Think of it this way. If someone shows you a small and unidentifiable snippet of the Mona Lisa, and then swears it is the Mona Lisa—how would they know that? Same thing with the alleged documentation in a debt buyer case. Under the rules of evidence, it should not be considered enough to prove their claim of ownership.
Finally, when a debt buyer does produce what seems to be adequate proof, watch out for robo signing, which has long been business as usual in the debt-buying industry.
Challenging the Evidence of Assignment
If you challenge the debt buyer with well-drafted discovery requests, you can poke some major holes in their case.
At a minimum, poking those holes will put you in a better position to try and negotiate a reasonable settlement. Those holes will also put you in a stronger position if you decide to move the case forward and fight the case.
Proceed with caution, however. Some judges will find an argument about chain of assignment persuasive, and some will not. If you are rolling the dice on having a potential judgment against you, you need to make a calculated decision about whether the risk is worth the reward (or penalty).
Originally published 2011–05–02. Last updated 2017-01-24.