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.
Under the terms of the settlement reached in several class actions against Midland Funding for its (apparently past) practice of employing robo-signers to execute affidavits for debt buyer lawsuits, each class member would receive under $20 — and that’s it. The Sixth Circuit rightly decided this was unfair (pdf).
Unfortunately, the Sixth Circuit seemed to think the settlement was unfair primarily because the named plaintiffs (i.e., those whose names actually appeared on the complaints) would receive $8,000 plus the elimination of their debts. The class members who opted into the settlement just got $17.38 each, and still owed their debts:
I’ve said as much, and the Minnesota Attorney General thinks so, too. Well, actually, she thinks “a debt buyer should have admissible evidence” to back up its claims. That’s not really a higher burden; it’s what the law requires. Except in cases of default, which is what debt buyers really want, after all.
The reason this is even an issue is that debt buyers often file thousands of lawsuits without the ability to back up their claims. They often have faulty information, and frequently get default judgments, which gives them the right to garnish bank accounts.
The ability to garnish bank accounts is serious. It gives debt buyers the right to freeze money in a defaulted defendant’s account before the court is even aware of the lawsuit. This is too serious to allow without knowing whether or not the debt buyer can even produce evidence to support its claims.
In order to administer any kind of justice, our court system requires two parties participating in a lawsuit. When that doesn’t happen, plaintiffs generally prevail, even if they haven’t produced any proof of their claims. Ordinarily, a default is a bad thing for a plaintiff, because there is little or no chance of getting paid.
Defaults are just what debt buyers want, though, because they have thousands of lawsuits to file and little or no proof in any of them. And debt buyers are willing and able to pursue collections on a massive scale—garnishing salaries and bank accounts to satisfy all those default judgments. Essentially, the debt buyer industry has found a loophole in the court system—a way to exploit the default rules.
That’s why courts need to raise the bar for debt buyers. When the usual result of a debt buyer lawsuit is a deprivation of property, courts should endeavor to make sure it doesn’t happen unless the debt buyer has shown some right to that property.
The Maryland Court of Appeals recently decided just that. Since last week, debt buyers must show actual proof that the defendant owes the debt and that the debt buyer has actually purchased the debt. The court also made it clear that it does not trust the robo-signed affidavits that debt buyers routinely attach to their lawsuits.
It’s a step in the right direction, and I hope more states will follow suit.
Most civil lawsuits are the result of a breakdown in negotiations. But 99.9% of civil lawsuits settle, because negotiation is almost always the best way to resolve a dispute, in the end. If you negotiate well, you may just get what you want—and avoid litigation. But even if you don’t, you can set yourself up to take your dispute to the next level.
Successful negotiation takes strategy, patience, and a cool head. Here’s how to maximize your chance of success, whether you are negotiating with a debt collector, a landlord, or anyone else.
The secondary debt market—credit cards and mortgages included—has relied on made-up legal terms and suspect justifications for years in order to turn the usually slow-moving court system into a speedy tool of business. It worked, probably because few consumers put up a fight. But more people are fighting back now, which means debt buyers are scrambling for legal footing.
It isn’t working, at least not in Pennsylvania, where the state court of appeals recently said “we reject [the] ‘This is how the industry does it’ mantra.”
The foreclosure mess got messier over a month ago, when GMAC, Bank of America, and others were caught faking (essentially) affidavits supporting their foreclosure lawsuits. The irony of banks acting irresponsibly with their finances was not lost on the media. Of course, robo-signing, as it was soon termed, was already commonplace in another kind of business: debt buyers.
Do you think debt collectors should be required to verify they have the correct debtor and the correct amount of the debt before filing a lawsuit against an alleged debtor?
A loaded question, to be sure, but here were the results:
A. Yes. 95.8% (5644)
B. No. 1.8% (108)
C. Undecided/No opinion. 2.4% (142)
Not much room for spin, there.