IS ALL U. S. DEBT COLLECTION DEFECTIVE?

EDITOR’S NOTE: It is obvious now that virtually all debt collection practices are based on illegal and/or improper assumptions without proof, due diligence or even service of process for defaults. Robo-signing, a new term coined in the mortgage crisis has been used for decades in the collection of virtually all other debt. Hundreds of thousands of people have judgments against them on debts they either do not owe or in many cases, never heard of. I strongly encourage you to find out what is in the public records of YOUR county. Whether you are having mortgage trouble or not, you might have another sort of credit problem that requires some effort to correct.

How many of us have received calls from institutional-sounding names who claim we owe money on debts we didn’t know we had? The robo-signing affidavits of the mortgage industry were merely a continuation of a long-standing practice wherein regulators looked the other way. It’s time to look straight at the problem and to actually protect consumers from illegal claims for debts that do not exist or which have long since been paid.

One lawyer reports that out of some 5,000 cases he only had a handful of losses. You stand to gain and so does your lawyer by challenging any collector or lender with debt verification letters and lawsuits if they don’t correct their books. Most states allow you to collect thousands of dollars in damages and attorney fees when you win.

“Analysts say that affidavit-signers at debt-buying companies appear to have little choice but to take at face value the few facts typically provided to them — often little more than basic account information on a computer screen.”

“That was made vividly clear during the deposition last year of Jay Mills, an employee of a subsidiary of SquareTwo Financial (then known as Collect America), a debt-buying company in Denver.

“So,” asked Dale Irwin, the plaintiff’s lawyer, using shorthand for Collect America, “if you see on the screen that the moon is made of green cheese, you trust that CACH has investigated that and has determined that in fact, the moon is made of green cheese?”

“Yes,” Mr. Mills replied.

————————————–

As the date of the sale approached, Ms. Almonte and her employees started to notice mistakes and inconsistencies in the accounts.

“We found that with about 5,000 accounts there were incorrect balances, incorrect addresses,” she said. “There were even cases where a consumer had won a judgment against Chase, but it was still part of the package being sold.”

Ms. Almonte flagged the defects with her manager, but he shrugged them off, she says, and he urged her and her colleagues to complete the deal in time for the company’s coming earnings report. Instead, she contacted senior legal counsel at the company. Within days, she was fired. She has since filed a wrongful termination suit against Chase.

October 31, 2010

Debt Collectors Face a Hazard: Writer’s Cramp

By DAVID SEGAL

When Michael Gazzarato took a job that required him to sign hundreds of affidavits in a single day, he had one demand for his employer: a much better pen.

“They tried to get me to do it with a Bic, and I wasn’t going — I wasn’t having it,” he said. “It was bad when I had to use the plastic Papermate-type pen. It was a nightmare.”

The complaint could have come from any of the autograph marathoners in the recent mortgage foreclosure mess. But Mr. Gazzarato was speaking at a deposition in a 2007 lawsuit against Asset Acceptance, a company that buys consumer debts and then tries to collect.

His job was to sign affidavits, swearing that he had personally reviewed and verified the records of debtors — a time-consuming task when done correctly.

Sound familiar?

Banks have been under siege in recent weeks for widespread corner-cutting in the rush to process delinquent mortgages. The accusations have stirred outrage and set off investigations by attorneys general across the country, prompting several leading banks to temporarily cease foreclosures.

But lawyers who defend consumers in debt-collection cases say the banks did not invent the headless, assembly-line approach to financial paperwork. Debt buyers, they say, have been doing it for years.

“The difference is that in the case of debt buyers, the abuses are much worse,” says Richard Rubin, a consumer lawyer in Santa Fe, N.M.

“At least when it comes to mortgages, the banks have the right address, everyone agrees about the interest rate. But with debt buyers, the debt has been passed through so many hands, often over so many years, that a lot of time, these companies are pursuing the wrong person, or the charges have no lawful basis.”

The debt in these cases — typically from credit cards, auto loans, utility bills and so on — is sold by finance companies and banks in a vast secondary market, bundled in huge portfolios, for pennies on the dollar. Debt buyers often hire collectors to commence a campaign of insistent letters and regular phone calls. Or, in a tactic that is becoming increasingly popular, they sue.

Nobody knows how many debt-collection affidavits are filed each year, but a report by the nonprofit Legal Aid Society found that in New York City alone more than 450,000 were filed by debt buyers, from January 2006 to July 2008, yielding more than $1.1 billion in judgments and settlements.

Problems with this torrent of litigation are legion, according to the Federal Trade Commission, led by Jon Leibowitz. The agency issued a report on the subject, “Repairing a Broken System,” in July. In some instances, banks are selling account information that is riddled with errors.

More often, essential background information simply is not acquired by debt buyers, in large part because that data adds to the price of each account. But court rules state that anyone submitting an affidavit to a court against a debtor must have proof of that claim — proper documentation of a debt’s origins, history and amount.

Without that information it is hard to imagine how any company could meet the legal standard of due diligence, particularly while churning out thousands and thousands of affidavits a week.

Analysts say that affidavit-signers at debt-buying companies appear to have little choice but to take at face value the few facts typically provided to them — often little more than basic account information on a computer screen.

That was made vividly clear during the deposition last year of Jay Mills, an employee of a subsidiary of SquareTwo Financial (then known as Collect America), a debt-buying company in Denver.

“So,” asked Dale Irwin, the plaintiff’s lawyer, using shorthand for Collect America, “if you see on the screen that the moon is made of green cheese, you trust that CACH has investigated that and has determined that in fact, the moon is made of green cheese?”

“Yes,” Mr. Mills replied.

Given the volume of affidavits, even perfunctory research seems impossible. Cherie Thomas, who works for Asta Funding, a debt buyer in Englewood Cliffs, N.J., said in a 2007 deposition that she had signed 2,000 affidavits a day. With a half-hour for lunch and two brief breaks, that’s roughly one affidavit every 13 seconds.

Executives at debt-buying firms say they have systems to ensure the accuracy of their affidavits. Robert Michel, chief financial officer at Asta Funding, says his company hires outside lawyers to read over affidavits, then has staff employees check their work.

“The people who work in this area are well trained, and they know that when they sign a statement they have to follow certain procedures,” he said. “They know what they are doing.”

He added that the pace of affidavits filed by Asta had dwindled since 2007 and was now closer to “several hundred” a day, rather than 2,000.

Even if debt buyers purchase the requisite information directly from a bank, it may be flawed. Linda Almonte oversaw a team of advisers, analysts and managers at JPMorgan Chase last year, when the company was preparing the sale of 23,000 delinquent accounts, with a face value of $200 million. With the debt sold at roughly 13 cents on the dollar, the sale was supposed to net $26 million.

As the date of the sale approached, Ms. Almonte and her employees started to notice mistakes and inconsistencies in the accounts.

“We found that with about 5,000 accounts there were incorrect balances, incorrect addresses,” she said. “There were even cases where a consumer had won a judgment against Chase, but it was still part of the package being sold.”

Ms. Almonte flagged the defects with her manager, but he shrugged them off, she says, and he urged her and her colleagues to complete the deal in time for the company’s coming earnings report. Instead, she contacted senior legal counsel at the company. Within days, she was fired. She has since filed a wrongful termination suit against Chase.

A Chase spokesman declined to comment, citing the pending litigation.

The majority of lawsuits filed in debt collection cases go unanswered, which is why most end with default judgments — victories for creditors that allow them to use court officers or sheriffs to garnish wages or freeze bank accounts, among other remedies.

There is a persistent argument about why so few consumers respond in these cases. Consumers often know they owe the debt and conclude that fighting about it is pointless, said Barbara Sinsley, general counsel at DBA International, a trade group of debt buyers.

Lawyers for consumers, on the other hand, contend that few debtors ever learn about the legal action until it is too late, often because the process server charged with alerting them never actually delivered a notification. In those instances when a consumer hires a lawyer, the consumer often prevails.

“I’ve lost four and I’ve taken about 5,000 cases,” said Jerry Jarzombek, a consumer lawyer in Fort Worth. “If the case goes to trial, I say to the judge, ‘Your honor, imagine if someone came in here to give eyewitness testimony in a traffic accident case and they didn’t actually see the crash. They just read about it somewhere. Well, this is the same thing.’ The debt buyers don’t know anything about the debt. They just read about it.”

Every plaintiff’s lawyer and consumer advocate in this field has a theory about why there has been so much fury over mortgage paperwork abuses but so little about debt collections. The stakes in collections cases are smaller, and of course, debt buyers were never given a taxpayer bailout.

“But what people don’t realize,” said Daniel Edelman, a plaintiff’s lawyer in Chicago, “is that the mortgage issue and debt collections are intimately connected. The millions of default judgments out there — you better believe that’s one reason that homeowners can’t afford their homes.”

Andrew Martin contributed reporting.

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11 Responses

  1. help

    They will change SOL – as necessary – to them. You will never win.

  2. This is the problem with the repeal of the Glass Steagall Act by the Gramm- Leahy Act and Deregulation. Banks were able to do commercial lending on both credit cards and mortgages – and then securitize the receivables to BOTH. They had your number – including FICO score – and home equity.. They knew exactly what was going on and what they were doing. They solicited and targeted YOU. All is silent in the media. No one is talking – if you examine WHAT really went on – it is not a pretty picture. RICO??? GLass Steagall was intended to prevent this – but – politicians gave it away – Thanks – Phil Gramm – for nothing.

    Abby – absolutely – you are at the heart of what is going on.

  3. I have done battle with debt collectors. If any of you have a debt collector after you, remember this: 1.Their entire business model operates outside the law–The Fair Debt Collections Practices Law and other state laws in each state. 2. Their files on each and every situation are a mess or nonexistent. 3. The person calling you on the phone makes a commission from whatever he collects. He may use threats and extortion, unless you send them a certified letter telling them to only contact you by US mail, it will just go on forever. 4. Ask them for the account number, a record of all the transactions ever made on the account, the exact figure that is owed and YOUR NAME ON AN ACCOUNT CONTRACT WITH THE ORIGINAL INK SIGNATURE. No electronic copies of any kind will suffice. 5. Sue them. They do not want to go to court or go to discovery. Sue them.
    The foreclosure mess is directly related and part and parcel of the illegal debt collection practices discussed here. Same illegal business model.
    http://www.challengingforeclosure.com
    Sirak@challengingforeclosure.com

  4. When does the statute of limitations start on collection of a second loan? or Credit Card?

    Is it date of default? Last payment? or when the bank/lender says it is?

  5. I suspect the only debt-collection that is not defective is that by the home-town banks that hold onto their loans. Look at how the smaller banks in the farm belt, i. e. places like Kansas, make loans.

    We need to go back to dealing with only the neighborhood banks and credit unions. Enough of the mega-banks!

    TBTF has got to GO!

  6. ANOTHER ROUND OF BUYING TOXIC SECURITIES!!! HERE WE GO AGAIN!!

    Fed Will Probably Start $500 Billion of Bond Buys, Survey Shows
    By Caroline Salas and Alex Tanzi – Nov 1, 2010 9:00 PM PT

    Nov. 1 (Bloomberg) — Julia Coronado, chief economist for North America at BNP Paribas, talks about the outlook for the financial markets following this week’s meeting of Federal Reserve policy makers and the congressional elections, the state of the U.S. labor market and her expectations for the size of the latest round of quantitative easing by the Fed. Coronado speaks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)
    Pimco’s Crescenzi Interview on Fed Policy, Treasuries

    Play Video

    Nov. 2 (Bloomberg) — Tony Crescenzi, a market strategist and portfolio manager at Pacific Investment Management Co., talks about the prospects for Federal Reserve monetary policy. The Fed will probably begin a new round of unconventional monetary easing this week by announcing a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News. Crescenzi also discusses the outlook for Treasuries and his investment strategy. He speaks from Newport Beach, California, with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

    The Federal Reserve is likely to start a fresh round of unorthodox stimulus tomorrow by announcing a plan to purchase at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

    Policy makers meeting today and tomorrow will restart a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed last week. Twenty-nine estimated the Fed will pledge to buy $500 billion or more, while another seven predicted $50 billion to $100 billion in monthly purchases without a specified total. The remainder said the Fed would buy up to $500 billion or didn’t quantify their forecast.

    The varied responses reflect differences among Fed officials over the total amount of purchases needed to bolster the recovery. Policy makers, pursuing unprecedented stimulus, have cut the benchmark rate almost to zero and bought $1.7 trillion in securities without generating growth fast enough to bring down unemployment from near a 26-year high.

    “There’s no silver bullet right now,” and central bankers have “very few options left in terms of lowering interest rates,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. He predicted $500 billion of Treasury and mortgage-backed securities purchases over the next six months.

    Shock-and-Awe Plan

    Disagreements among policy makers over whether to incrementally expand the balance sheet or stage a so-called shock-and-awe program of big asset purchases has created confusion among investors over the likely size and duration of any new easing, said Ward McCarthy, chief financial economist at Jefferies & Co. in New York.

    “There has not been a uniformity of opinion emanating from the multitude of public appearances from Fed officials,” McCarthy said. He predicts the Fed will buy $500 billion of securities over the next six months and was among 13 economists who said the purchases would include mortgage-backed bonds in addition to Treasuries.

    New York Fed President William Dudley set expectations at $500 billion in purchases when he said in an Oct. 1 speech that purchases totaling about that amount would add as much stimulus as lowering the Fed’s benchmark rate by 0.5 percentage point to 0.75 percentage point.

    Dudley put the $500 billion figure “in there and it sounded like he was trying to move it along in that direction,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, who predicts the Fed will announce up to $500 billion of purchases by March.

    Many Variables

    Referring to investor expectations of the central bank’s next move, Rupkey said, “It’s a mess and it’s just because there’s too many variables between the amount and the time period.”

    St. Louis Fed President James Bullard said Oct. 21 the Fed should buy $100 billion in long-term Treasuries this month and calibrate subsequent purchases based on the course of the economy. Atlanta Fed President Dennis Lockhart said that a pace of $100 billion of purchases a month is “in the range of numbers one might consider.”

    Estimates by economists about the duration of a Fed asset purchase program ranged from as short as three months to as long as the end of 2011. Three analysts said the Federal Open Market Committee wouldn’t announce new stimulus.

    Favorable Reaction

    “It’s highly unlikely that anyone’s going to get all the details right because going into the meeting Fed officials themselves won’t have agreed on all of” them, Jefferies’ McCarthy said. He said he expects the Fed to buy mortgage-backed securities because it would be a positive surprise, and the central bank wants a “favorable market reaction.”

    The lack of clarity over the Fed’s plans has played out in the Treasury market, which handed investors a loss of 0.18 percent in October, the first negative monthly return since March, according to index data compiled by Bank of America Merrill Lynch. After falling to 2.38 percent on Oct. 7 from 2.51 percent on Sept. 30, the yield on 10-year Treasuries has since climbed to 2.63 percent as of late yesterday, Bloomberg data show.

    Not all Fed officials agree the central bank should start new stimulus measures. Kansas City’s Thomas Hoenig, who has already dissented six straight times, said Oct. 25 that he opposes more easing because it’s “a very dangerous gamble” that may accelerate inflation and create asset-price bubbles. Dallas Fed President Richard Fisher and the Philadelphia Fed’s Charles Plosser have also spoken out since the FOMC’s last meeting against more action by the central bank.

    Raise Inflation

    Chicago Fed President Charles Evans said several times last month that the central bank needs to take action and should buy securities on a large scale to carry out his preferred strategy of aiming to raise inflation temporarily.

    “They’re in uncharted waters here, and no one really knows, we’re all guessing” about the size and duration of the easing program and its ultimate impact, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “I haven’t seen anybody out there who has made a convincing case that this is anything but a trivial boost for the economy.”

    The central bank last month asked bond dealers and investors for projections of its asset purchases over the next six months, along with the likely effect on yields. The New York Fed, the branch of the Fed System that implements monetary policy, asked about expectations for the size of the program and the time over which it would be completed, according to a survey obtained by Bloomberg News.

    Incremental Tactic

    Stanley predicted the Fed will opt for the incremental tactic and announce a program to buy $200 billion of Treasuries by its Jan. 26 meeting.

    “They want to preserve flexibility and to have the option of tweaking the pace as they go based on whatever it is that they choose to look at,” Stanley said.

    “Clearly the thrust of this is to get long-term rates lower, but when you listen to what they say about it, they don’t even plan to get a lot of juice out of what they want to do,” he said. “What does that do for the economy?”

    Dudley, who is also vice chairman of the FOMC, said in the Oct. 1 speech that the central bank would probably need to act to address “unacceptable” job growth and inflation.

    The U.S. economy expanded at a 2 percent annual rate in the third quarter and inflation cooled, Commerce Department figures showed Oct. 29 in Washington. The report showed the inflation gauge watched by the Fed rose the least in almost two years as retailers like Wal-Mart Stores Inc. and Target Corp. use discounts to lure shoppers.

    Raise Expectations

    In addition to a new round of asset purchases, policy makers are also considering efforts to boost public expectations that inflation will rise, according to the minutes of the FOMC’s Sept. 21 meeting.

    All but two economists predict the Fed will leave the interest rate on excess reserves unchanged at 0.25 percent. Fifteen analysts, including McCarthy, say the Fed will alter the phrase that its benchmark interest rate will stay near zero for an “extended period,” which was introduced in March 2009.

    “They’ve been telling us they’ve been considering a change to the ‘extended period,’ so at some point they’re going to do it and this is as good a time as any,” McCarthy said.

    The questions were as follows:

    1a. At the FOMC’s Nov. 2-3 meeting, will the committee decide to (choose one):

    a) Retain the current policy of keeping a constant level of the Fed’s securities holdings by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities

    b) Increase the level of securities holdings through additional asset purchases

    Result (56 replies): A, 3; B, 53.

    1b. If you answered (b) to the last question, please provide your predictions on the following possible elements of the announcement:

    a. The amount of additional purchases announced in billions

    of dollars:

    b. The length of time for the additional purchases to be

    completed:

    c. The types of securities to be purchased:

    1) Treasuries

    2) mortgage-backed securities

    3) both Treasuries and MBS

    4) other (please elaborate)

    Result (53 replies): a) 29 expect $500 billion or more; 7 predicted monthly purchases of $50 billion to $100 billion without specifying a total; 12 predicted up to $500 billion; 5 didn’t specify an amount.

    b) 7 predicted monthly purchases with no timeline; 9 predicted up to three months; 17 said between three and six months; 9 said between six months and one year; 5 said through 2011; 6 didn’t specify a pace or timeline.

    c) 38 said Treasuries (including Treasury-Inflation Protected Securities); 13 said both Treasuries and MBS (including one that also predicted agency bond purchases); 2 didn’t specify.

    2. Will the FOMC statement following the Nov. 2-3 meeting include any changes to the following sentence: “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Yes or no.

    Results (49 replies): Yes, 15; No, 34.

    3. Will the Fed decide at the Nov. 2-3 meeting to reduce the 0.25 percent interest rate on excess reserves? Yes or no.

    Results (47 replies): Yes, 2; No, 45.

    To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Alex Tanzi at atanzi@bloomberg.net

    To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

  7. I litigated credit card collection defense cases for years. In the beginning I won cases on strict application of contracts law and the rules of evidence. Attacking affidavits was one of the primary areas of attack. By the end, I would win once in a while on a procedural technicality. The judges have rubber stamped so many of these cases that they take as gospel all of the crap that is thrown in front of them, and basically dare the Defendant to appeal.

    If you think the foreclosure dockets are hectic, take a walk down to the credit card collection courtrooms–they dwarf the foreclosures by a ton. The whole system needs to be cleaned from top to bottom.

  8. The whistle blowers in the pretender lenders and the foreclosure mills need to be given incentive to come forward and start talking, they should use wikileaks or we may give you an outlet here in livinglies to expose the massive fraud.

    How much longer can you put up with the stench?

  9. Bob, I totally agree with you. The debt collection certainly is defective. But that’s not even really the point–the point is that there is no “debt” because as you pointed out on your other post, there is no “loan”–there is only an exchange. That is to say, when one signs a promissory note and gives it to a “lender,” it is the value of that very promissory note that is being “lent” to the “borrower.”

    Here’s an analogy I like: Jack says to Jill, “I sure wish I could have an apple.” Jill says, “OK, I’ll loan you an apple.” “Oh, great!” say Jack. Jill says “First, give me an apple.”

    Jack is kind of puzzled, but comes up with an apple to give to Jill, and hands it to her. “Great,” says Jill, “here’s that apple I said I’d loan you,” and Jill hands the apple right back to Jack. “Now you owe me two apples–one as principal and one as interest, and I’ll need them by next week,” Jill says to a stunned Jack.

    That’s our “economy”–we give the bank an “apple,” i.e., a promissory note, and the bank hands the apple right back to us and expects two (or more) apples in return. In a “loan” transaction, banks risk nothing, spend nothing, and produce nothing. In fact, they charge US for loaning them money!

    It’s outrageous. And we should be outraged. So yes, challenge your “debts,” with a clear conscience. You already paid for your mortgage, your credit card, your car, etc. when you gave all those “lenders” your “apple.”

  10. I hate this say this. These same affidavit defects are in CRIMINAL CASES and WARRANTS. Like civil cases in which 80 default , 80% of people in criminal cases plead guilty as a part of a cost benefit analysis.

    The entire justice system has been perverted. We have slept on our rights.

  11. Neil I think it’s time for you and all the lawyers who participate here with you, to file a country wide class action; One big concerted effort. I’ll join the class as a lead Plaintiff and I am sure the millions that visit this site would do the same. The iron is hot and it is time to strike while the Media still has focus on this issue. You know as well as I do, that soon this will fade away.

    Every count and claim is right here. You have already made the case. Look at the post I put under CRIMES AGAINST AMERICAN HOMEOWNERS; that could be the opening argument. And then a cohesive compilation of all the thoughts and arguments made here by you and many others. Neil it would be explosive. You would need a body guard, more than one, I’d give my service and I know a few of my friends would also offer up their assistance. This could get dangerous, that’s right up our alley.

    RE: First National Bank of Montgomery vs. Jerome Daly
    Justice Martin V. Mahoney was murdered 6 months after he entered the Credit River Decision on the books of the Court, why the case was never legally overturned, nor can it be.

    Let me know Neil.

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