BofA Continues Feeding Zombie Debt-Buying Sleaze Factories With Purportedly Unpaid Accounts Backed By Unreliable Records

American Banker reports:

• Bank of America has sold collections agencies rights to sue over credit card debts that it has privately noted were potentially inaccurate or already repaid.

***

• At Bank of America, records declared unreliable yet sold to CACH were used to file thousands of lawsuits against consumers, according to a review of hundreds of cases in the state courts where collection suits are typically filed. The overwhelming majority of cases end in default judgments, which are awarded to creditors when borrowers don't show up to contest the claims made against them.



• In cases where debtors do challenge collections demands in court, the original bank-creditor must testify about the documentation supporting the claims. In several such instances, people identified as Bank of America employees have submitted affidavits attesting to the validity of debts sold by the bank to collections firms.



• Even though Bank of America previously disavowed "the accuracy of the sums shown as the current balance," the sworn statements vouch for the borrowers' debts down to the penny and declare that the bank's "computerized and hard copy records" back the claims.



• There are other possible discrepancies, as well: the affidavits state that B of A "has no further interest in this account for any purpose," while the sales contracts reference a "revenue sharing plan."



• The prospect that B of A was selling unreliable credit card debts did not deter CACH from buying them. A subsidiary of SquareTwo Financial, CACH does not collect debts itself. Instead, it operates like a restaurant franchiser, acquiring rights to the delinquent debts that are the raw materials of the collections business. It then works with law firms around the country that do the actual collections work, providing them with debt files, court witnesses and other services.



• In thousands of cases in state courts, CACH has appended a single page from its purchase agreements with Bank of America attesting to its ownership of delinquent credit card debt.



• CACH has omitted from many such filings the more than 30 additional pages where Bank of America disclaims the accuracy of its debt records. Even so, attorneys affiliated with CACH have cited the reliability of Bank of America's records as the foundation for their collections lawsuits.(1)

For more, see Bank of America Sold Card Debts to Collectors Despite Faulty Records.

See Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration for a Federal Trade Commission report on dealing with zombie debt.

Go here for other posts on zombie debt.

(1) For related American Banker stories, see:

• Borrower Beware: B of A Customer Repaid Her Bill Yet Faced a Collections Nightmare (MARCH 29, 2012);
• How a Whistleblower Halted JPMorgan Chase's Card Collections (MARCH 16, 2012);
• OCC Probing JPMorgan Chase Credit Card Collections (MARCH 13, 2012);
• 'Robo' Credit Card Suits Menace Banks (JANUARY 31, 2012);
• JPM Chase Quietly Halts Suits Over Consumer Debts (JANUARY 11, 2012).

For more on the problems with zombie debt, see:

• 'Zombie' debt is hard to kill (Companies now buy ancient bad debts for pennies and squeeze you to pay. Here's how to get them off your back),
• Zombie Debt: The Bills That Won't Die,
• How to Deal with Zombie Debt,
• Some Debt Collectors Are Using Illegal Tactics (Hundreds of collection companies now specialize in collecting on 10- to 20-year-old debts called "zombie debts" -- debts so old you can't even be sued over them).

"Zombie Debt" Buyers Among Those Ordered By Feds To Turn Over Information About Business Practices

From the Federal Trade Commission:

• The Federal Trade Commission has ordered the nation’s largest consumer debt buyers to turn over information about their practices in buying and collecting consumer debt, which the FTC intends to use for a study of the debt-buying industry. Consumers have reported that debt collectors frequently try to collect from the wrong consumers or the wrong amounts, or both. The FTC is seeking information to determine whether buyers of consumer debt are contributing to these problems.

• The FTC sent the orders to nine companies that are in the business of buying consumer debts and then trying to collect on those debts, either on their own or by hiring debt collection firms. These nine companies collectively purchase about 75 percent of the debt sold in the United States.

• Creditors often sell debt they have been unable to collect to companies known as debt buyers. When debts are sold, the buyers receive information about the debtor and the debt from the sellers. Debt buyers try to collect on the debt they purchase, and if they do not get paid, they often sell the debt to other debt buyers. Many debts are purchased and resold several times over a period of years before all collection efforts finally cease.

Source: FTC Orders Buyers of Consumer Debt to Submit Information for Study of Debt Buying Industry.

In related stories, see:

• 'Zombie' debt is hard to kill (Companies now buy ancient bad debts for pennies and squeeze you to pay. Here's how to get them off your back),
• Zombie Debt: The Bills That Won't Die,
• How to Deal with Zombie Debt,
• Some Debt Collectors Are Using Illegal Tactics (Hundreds of collection companies now specialize in collecting on 10- to 20-year-old debts called "zombie debts" -- debts so old you can't even be sued over them).

Go here and go here for more on zombie debt.

JPM Chase Abandons Home In Foreclosure Limbo; Bankster's Handiwork Leaves Homeowner With 'Zombie Title', Dying & Ineligible To Get Social Security Disability Benefits Needed In Effort To Dodge Early Grave

Reuters reports:

• Joseph Keller doesn't expect he'll live to see the end of 2013. He blames the house at 190 Avondale Avenue.
  
  Five years ago, Keller, 10 months behind on his mortgage payments, received notice of a foreclosure judgment from JP Morgan Chase. In a few weeks, the bank said, his three-story house with gray vinyl siding in Columbus, Ohio, would be put up for auction at a sheriff's sale.
  
  The 58-year-old former social worker and his wife, Jennifer, packed up their home of 13 years and moved in with their daughter. Joseph thought he would never have anything to do with the house again. And for about a year, he didn't.
  
  Then it started to stalk him.
  
  First, in 2010, the county sued Keller because the house, already picked clean by scavengers, was in a shambles, its hanging gutters and collapsed garage in violation of local housing code. Then the tax collector started sending Keller notices about mounting back taxes, sewer fees and bills for weed and waste removal. And last year, Chase's debt collector began pressing Keller to pay his mortgage, which had swollen, with penalties and fees, from $62,100.27 to $84,194.69.
  
  The worst news came last January, when the Social Security Administration rejected Keller's application for disability benefits; the "asset" on Avondale Avenue rendered him ineligible. Keller's medical problems include advanced liver disease, hepatitis C and inactive tuberculosis. Without disability coverage, he can't get the liver transplant he needs to stay alive.
  
  "I can't make it end," says Keller. "This house, I can't get out."
  
  Keller continues to bear responsibility for the house because on December 23, 2008 - about two months after he received Chase's notice of sale - the bank filed to dismiss the foreclosure judgment and the order of sale. Chase said it sent Keller a copy of its court filing on December 9, 2008. Keller says he never received any notification. Either way, his name remained on the property title.
  
  WITH IMPUNITY
  
  The Kellers are caught up in a little-known horror of the U.S. housing bust: the zombie title. Six years in, thousands of homeowners are finding themselves legally liable for houses they didn't know they still owned after banks decided it wasn't worth their while to complete foreclosures on them. With impunity, banks have been walking away from foreclosures much the way some homeowners walked away from their mortgages when the housing market first crashed.
  
  "The banks are just deciding not to foreclose, even though the homeowners never caught up with their payments," says Daren Blomquist, vice president at RealtyTrac, a real-estate information company in Irvine, California.
  
  Since 2006, 10 million homes have fallen into foreclosure, according to RealtyTrac, a number that in earlier, more stable times would have taken nearly two decades to reach. Of those foreclosures, more than 2 million have never come out. Some may be occupied by owners who have been living gratis. Others have been caught up in what is now known as the robo-signing scandal, when banks spun out reams of fraudulent documents to foreclose quickly on as many homeowners as they could.
  
  And then there are cases like the Kellers, in which homeowners moved out after receiving notice of a foreclosure sale, thinking they were leaving the house in bank hands. No national databases track zombie titles. But dozens of housing court judges, code enforcement officials, lawyers and other professionals involved in foreclosures across the country tell Reuters that these titles number in the many thousands, and that the problem is worsening.
  
  "There are thousands of foreclosures in limbo, just hanging out there, just sitting, with nothing being done," says Cleveland Housing Court Judge Raymond Pianka, whose pending court cases tied to derelict properties have doubled in the past two years, to 1,000. He says the surge is due largely to homes vacated by people who fled before an imminent foreclosure sale, only to learn later that they remain legally responsible for their house.
  
  When people move out after receiving a notice of a planned foreclosure sale and the bank then cancels, municipalities are left to deal with the mess. Some spend public funds on securing, cleaning and stabilizing houses that generate no tax revenue. Others let the houses rot. In at least three states in recent months, houses abandoned by owners and banks alike have exploded because the gas was never shut off.
  
  THREAT OF JAIL
  
  Unsuspecting homeowners have had their wages garnished, their credit destroyed and their tax refunds seized. They've opened their mail to find bills for back taxes, graffiti-scrubbing services, demolition crews, trash removal, gutter repair, exterior cleaning and lawn clipping. At their front doors they've encountered bailiffs brandishing summonses to appear in court.
  
  In some cities, people with zombie titles can be sentenced to probation - with the threat of jail if they don't bring their houses into compliance.
  
  "These people have become like indentured serfs, with all of the responsibilities for the properties but none of the rights," says retired Cleveland-Marshall College of Law Professor Kermit Lind.

***

• Cases against zombie-title holders are rising due to everything from sewer bills to tilting chimneys, and they are clogging the courts. In Milwaukee, Wisconsin, about 900 cases in the foreclosure process involve zombie titles. In South Bend, Indiana, the number is 1,275, up from 600 in 2006. In Memphis, Tennessee, cases have doubled in the past two years to 1,500.
  
  In Cleveland, 15 percent of foreclosures between 2005 and 2009 stalled out in foreclosure limbo, more than a third of them involving homeowners who had fled foreclosure notices, according to the Case Western Reserve study.

***

• Once a bank walks away from a foreclosure, the real rot begins. Living rooms turn into meth labs. Falling shingles menace passers-by. Squatters' cooking fires turn into infernos. The latest iteration of the trend: gas explosions.
  
  Electric companies usually shut off the juice when homeowners tell the utility they are moving. But natural-gas companies usually don't. In recent months, abandoned homes have exploded in Chicago, Cleveland and Bridgeport, Connecticut. In all cases, foreclosed homeowners had moved out. With no one home to smell the gas, it went undetected - until the houses blew.
  
  "We are seeing more and more close calls," says Mark McDonald, a former natural gas public safety worker who now runs the New England Gas Workers Association. "These houses are a formula for disaster."

***

• In Columbus, Ohio, Joseph Keller recently paid a visit to the empty house on Avondale Avenue. In the living room, the floor was littered with dirty diapers, pill bottles, condoms, sooty mattresses and soda cans. In the kitchen, squatters had hung pink curtains.
  
  "They tore it to hell and back," Keller said, kicking at a dirty mattress. "We never would have left the home if we weren't told to get out."
  
  The Kellers live in their daughter's dining room, where their queen-size bed leaves little room to maneuver. Joseph can't sit, stand or sleep for more than 15 minutes at a time. He can't take pain medication because of his diseased liver. Every few months, he makes a trip to the emergency room, where doctors drain his abdomen of excess fluid.

***

• At a hearing in early December, a Social Security administrative judge told the Kellers that he would review their appeal of the original denial of benefits, a process that he said could take two months. Joseph Keller responded that he might not be around that long. Earlier this month, the judge sent the case back to the local office after it determined that the house was virtually worthless. Keller still has no benefits.
  
  A Social Security Administration spokesperson declined to comment on the case.
  
  "He's dying," says Keller's daughter, Barbara. "He needs his name off this house."

For the story, see Special Report: The latest foreclosure horror: the zombie title.

More On Zombie Debt Buyers

A recent press release from the Federal Trade Commission announced that it has ordered the nation’s largest consumer debt buyers (ie. zombie debt buyers) to turn over information about their practices in buying and collecting consumer debt, which the FTC intends to use for a study of the debt-buying industry.

For resources that provide insights on defending consumers in cases involving attempts to collect zombie debt, see:

• Consumer Defense in Debt Buyer Cases and other Collection Cases 2009,
• Brief filed in lawsuit against zombie debt buyer Portfolio Acquisitions,
• Representing Consumers In Litigation With Debt Buyers,
• Article on Zombie Debt Collection,
• Are You Being Sued by a Debt Buyer? Debt Collection Defense,
• United States of America v. Steven D Goldberg (an indictment that provides an example of why you cannot assume that a debt buyer owns the debt it is trying to collect).

NYC Judge: "Rubber Stamp" Method Out-Of-Bounds When Granting Judgment To Zombie Debt Buyers Against Unwitting Consumers; Calls Racket "A Game Of Odds"

In a 2007 court ruling, New York City Civil Court Judge Philip S. Straniere expresses a concern with the growing number of creditors appearing before him seeking judgments against consumers who have allegedly defaulted on credit card debt, and who have failed to make an appearance during the proceedings.

In denying judgment to a creditor in one case, Judge Straniere provides a thorough examination of the procedure that should be applied by judges in New York (and possibly outside New York as well) when scrutinizing creditors in the determination of whether or not to grant judgments on account of the allegedly delinquent debts. His examination may be useful to those consumers (and the attorneys who represent them) being sued by creditors (especially those who are less-than-affectionately referred to as "zombie debt buyers") in attempts to thwart their efforts.(1)

Straniere begins his ruling by providing the following background [all bold text is my emphasis, not in the original; text broken up and enumerated for ease of reading; all citations omitted]:

• Over the past several years this Court has received a plethora of confirmation of arbitration award petitions. These special proceedings commenced by a variety of creditors or their assignees seek judgments validating previously issued arbitration awards against parties who allegedly defaulted on credit card debt payments. In most of these cases the respondents have failed to answer.

• It is almost never apparent, from the filings, (1) what type of process was effectuated on the debtor to notify them of the arbitration proceedings, (2) whether the debtor participated at all in the underlying arbitration, (3) what evidence, if any, the arbitrator considered, (4) what claims the arbitrator ruled upon, and (5) what figures the arbitrator used in calculating each award.

• While the modern day creditor seeks no pound of flesh as did Shakespeare's Shylock in the "Merchant of Venice," the judiciary continues to provide an important role in safeguarding consumer rights and in overseeing the fairness of the debt collection process. As such, this Court does not consider its function to merely rubber stamp confirmation of arbitration petitions.

• A trial court does not have a "mandatory, ministerial duty to grant motion[s] for default judgment on every properly verified complaint on which there has been default; [the] court retains [the] discretionary obligation to determine whether [the] applicant has met th[eir] burden of stating [a] prima facie cause of action," and the same is true for arbitration confirmations pursuant to CPLR Article 75.

• Specifically, "an arbitration award may be confirmed upon nonappearance of the respondent only when the petitioner makes a prima facie showing with admissible evidence that the award is entitled to confirmation." If petitioner fails to establish a prima facie case the confirmation petition must be denied.

• Despite the absence of objections by most of the defaulting respondents, in the interest of justice, this Court chooses to analyze the prima facie showing of each of the petitioners' applications. As a result of such undertaking, the Court often discovers fatal procedural and substantive defects inherent within the petitions.

• The Court is aware of how the market for the sale of debt currently works, where large sums of defaulted debt are purchased, by a small number of firms, for between .04 and .06 cents on the dollar. The incentive therefore, for the firm purchasing the debt, is to herd these cases into arbitration and churn out papers seeking their confirmation as quickly as possible. The entire industry is a game of odds, and in the end as long as enough awards are confirmed to make up for the initial sale and costs of operation the purchase is deemed a successful business venture.

• However, during this process mistakes are made, mistakes that may seriously impact consumers and their credit. The petition at bar is a specimen replete with such defects and the Court takes this opportunity to analyze the filing in detail, in hopes to persuade creditors, not simply to take more care in dotting their "i"s and crossing their "t"s in their filings, but to assure a minimum level of due process to the respondents.

• Why is this debt sold for such a cheap price? Certainly part of the reason is the poor prospects of payment these creditors expect from the defaulting individuals given their past delinquent payment history, while another part is undoubtably to avoid additional costs associated with debt collection. Further yet, is the simple fact that the proof required to obtain a judgment in the creditor's favor is lacking, usually as a result of poor record keeping on the part of the creditor.

• This decision reviews applicable New York cases on confirmation of arbitration awards, and provides additional principles to guide the process. In doing so, it is expected that judicial economy will be served, and more importantly, that the rights, particularly due process, of all parties will be adequately addressed and protected.(2)

For the specific facts of this case, Judge Starniere's examination of the applicable Federal and state law, and his application of the law to the facts in this case, see MBNA Am. Bank, N.A. v Nelson, 2007 NY Slip Op 51200(U), 15 Misc 3d 1148(A) (Civ. Ct. City of New York, Richmond Cty. 2007).

Go here for other posts on zombie debt.

(1) Keep in mind that once a creditor obtains a judgment against a consumer, the recording of the judgment will usually operate to create a lien against any real estate owned by the alleged debtor, and which could result in a forced sale of the property (subject to applicable homestead exemptions under state and Federal bankruptcy law). See Ohio Woman Concerned Over Claim Of Lien On Home For "Zombie" Debt That's Not Hers. For those without real estate, the judgment creditor can still go after wages, bank accounts, and other assets (again, subject to any applicable exemptions under state or Federal bankruptcy law).

(2) Attempts at tightening up the law in this area are being made. See NYC Lawmakers Move To Toughen Regs On Debt Scavengers Buying Up, Filing Lawsuits To Collect "Zombie Debt"

For a post regarding the use of "sewer service" in connection with the filing of lawsuits by zombie debt buyers, see 35 Law Firms Named In Suit Seeking To Void 100,000+ Money Judgments; 20+ Add'l Firms Currently In NY AG's Crosshairs In Ongoing "Sewer Service" Probe.

See also, Justice Disserved, a 2008 report by MFY Legal Services (a nonprofit provider of free legal services in New York) that documents statistics of victims of improper service who had judgments unknowingly entered against them, often to devastating effect.

American Dream Turns Into Nightmare For Unit Owners In 130-Unit, NYC-Financed Affordable Housing Development; HOA's Lawsuit Blames Developers, Architects For Crappy Construction, Design; Condo Board President Fears Complex Could Turn Into "Zombie" Condos If Repairs Price Owners Out Of Homes

In Arverne, Queens, Habitat Magazine reports:

• A city-sponsored affordable Rockaways housing development is at risk of becoming “zombie” condos if the board loses a $60 million lawsuit against developers and architects. That’s the fear of Lenny Yarde, board president of Waters Edge at Arverne, a 130-unit complex made up of 65 two-story buildings completed in 2009 amid much fanfare from the Bloomberg administration.
  
  The lawsuit, which seeks $10 million for repairs and $50 million in punitive damages,(1) was filed by the condo board against developers and sponsors Briarwood Organization and its principals, including Raymond, Vincent, and James Riso, and AIA Architects and Associates.
  
  The suit claims the complex is plagued by numerous construction defects, including improper installation of roofs and gutters, corroded electrical pull boxes, water damage to windows and doors, inadequate boilers, and lack of access to electrical panels and water shut off valves. The board hired an engineer to document the alleged defects.
  
  “My feeling is that we have been duped,” says Yarde, who claims no entity involved in the complex’s construction – from the City of New York to the developer – will take responsibility.
  
  “How does the city hand over $12.8 million to a developer [to complete the project] and not have oversight on what’s going on?” Yarde says. “It seems to be that as soon as we have raised money to purchase and the developer has that money, he can ride off into the sunset.”
  
  According to the Waters Edge board, issues have been present for at least six years, and the past 24 months have been spent in fruitless negotiations with Briarwood Organization.
  
  The city’s Department of Housing Preservation & Development (HPD) and the Department of Buildings did not respond to requests for comment. In an email, HPD advised the office of City Councilman Donovan Richards that Waters Edge should “explore any and all legal remedies it has against the contractor/developer, particularly with respect to any warranties.”
  
  Florence Ferguson, the board secretary who bought into Waters Edge in 2010, says she is particularly angered by the lack of accountability and oversight of the project by the city. “The developer obviously has no integrity and is going to walk away,” Ferguson says. “They don’t care. This developer got $12.8 million from the city – from people’s taxes.”
  
  The average cost for a Waters Edge two-bedroom unit is $188,000, with three-bed units topping out at $300,000, with HPD subsidies.
  
  If the lawsuit is not successful, many unit-owners fear that some units will foreclose and will not be resold.
  
  “This can become a zombie complex because people will be forced out of their homes,” Yarde says. “You can’t pay common charges or your mortgage if you are priced out of your home [by the repairs]. If this can happen to us, it can happen to anyone who purchases affordable housing. That is not the American dream. That’s the American nightmare.”
  
  Briarwood Organization did not respond to a request for comment.

Source: When Affordable Housing Becomes a Money Pit (Lawsuit seeks to prevent “zombie” condos on the Rockaway Peninsula).

---------------------

(1) Another story prices the damages sought in the lawsuit at $210 million. See Owners of Queens city-financed affordable condos sue developer over construction defects (The condo board at Waters Edge at Arverne in the Rockaways is seeking $210 million from the project's developer, Briarwood Organization, and its architect).

Repeated Attempts By Lenders At Collecting Discharged "Zombie" Mortgage Debt Forces Texas Consumer To Sue

In League City, Texas, the Houston Chronicle reports:

• Bankruptcy is supposed to get rid of bad pennies. Prince Ella Green thought so. She and her husband, James, who live in League City, fell on hard times and filed bankruptcy in 1995. The case was a Chapter 13, meaning the Greens submitted a plan for repaying most of their debt, which they did during the next five years.

• Some debt, including a mortgage on a home in Texas City that the Greens bought as an investment property and later lost to foreclosure, was discharged as part of the bankruptcy, according to court records. In other words, a judge ruled that the mortgage was debt the Greens were not legally responsible for paying.

• Tell that to Cenlar Federal Savings Bank and several other companies that have been trying to collect the debt ever since.

***

• Tired of battling the zombie debt for more than a decade, the Greens went on the offensive. In February, they sued all three mortgage companies that had attempted to collect the debt, accusing them of, among other things, deceptive trade practices and violating federal bankruptcy and debt collection laws.

• "I decided I'm not going to take this lying down," Green said. "It's not just me. It's happening all over America." As more Americans struggle with mounting debt, they're finding that, like bad pennies, sometimes the debt never goes away.

For more, see Zombie debts refuse to die.

Go here for other posts on zombie debt. zeta

Chicago Court "A Frenetic Debt Collections Machine" As 119K+ Cases Clog System; Sloppy Practices, "Zombie Debt" Affect Consumers

In Chicago, Illinois, a story in the Chicago Tribune makes apparent that mortgage foreclosures are not the only cases that are clogging the court system:

• Cook County Circuit Court has been turned into a frenetic debt collections machine, a reflection of easy credit gone sour and a collections industry determined to get paid. More than 119,000 civil lawsuits against alleged debtors are clogging courtrooms, and at least half will result in judgments that debt collectors will use to dock wages, seize bank accounts and file liens against homes, compounding the woes of troubled borrowers.

• But because debt collectors operate on volume—pushing through lawsuits based on little more than lists of names, addresses and alleged amounts due—there are also plenty of instances of mistaken identities, cases where debts are alleged when the bills have been paid and even situations where people have fallen behind and tried to work out repayments only to be hauled in to court. "The system is out of control," said Michelle Weinberg, a supervisory attorney at the Legal Assistance Foundation of Metropolitan Chicago.

***

• A new breed of collector has transformed the industry in the last decade, purchasing distressed debt from credit card issuers, retailers and other consumer lenders. Debt buyers usually only pay pennies on the dollar for packages of unpaid bills that include limited electronic information about the borrowers.

***

• Consumer groups say the high number of default judgments can mask flaws with the lawsuits. Credit agreements and payment histories are often not included when suits are filed. Instead, debt collectors file an affidavit attesting to the validity of the debt, and it's not unusual for that affidavit to be erroneous, said Bob Hobbs, deputy director of the National Consumer Law Center. [...] In New York, an Urban Justice Center study in 2006 found that in 99 percent of a sampling of default judgments that the evidence used to obtain the judgment did not meet the state's legal standards.

The experience of one consumer victimized by the sloppy practices of a purported creditor and the creditor's attorney was reportedly described as "a perfect example of zombie debt. You pay it, and it comes back to life."

For more, see Debt collectors pushing to get their day in court (More aggressive strategies fill court dockets, result in mistaken identities) (if link expires, try here).

Go here for other posts on zombie debt. zeta

Zombie Debt That Came Back To Life & Bite 'Deed-In-Lieu-Conveying' Homeowner Leads To Suit Against Fannie, BoA, Foreclosure Mill Sweatshop

In Fort Myers, Florida, The News Press reports:

• David Cruz Jr. got what he believed was a great offer in a foreclosure lawsuit filed against him by giant mortgage lender Fannie Mae. If Cruz deeded the modest Fort Myers investment house back to Fannie Mae, the government-backed company would release him from the loan's $123,750 note: the obligation underlying his mortgage.



• He deeded the house back to Fannie Mae, but court records show he didn't get what he bargained for. Now, experts say, he and thousands of others in Florida who took the same deal from Fannie are at risk of being stalked by a so-called "zombie note:" debt that appears dead and gone but still can come back to life.



• Cruz, of Fort Lauderdale, is suing Fannie in Lee circuit court along with its loan servicer Bank of America and their attorney, Fort Lauderdale-based Law Office of Marshall C. Watson, which handled the foreclosure and the deed-back deal.

***

• Even if Fannie has the note, Cruz should take little comfort from the fact he's dealing with a federally backed entity, said Jack Williams, resident scholar at the American Bankruptcy Institute and a bankruptcy professor at Georgia State University. "That note is a legal obligation," he said, and even if Fannie Mae doesn't sue, it could sell the debt to someone who would.



• "We saw something very similar to this in the debacle in the '80s, people buying notes from the government and suing," Williams said. "I won't rule out that could happen again. They sold the note to collection agencies and law firms and places like that."



• In the real estate meltdown of the '80s, he said, it was the Resolution Trust Corp., set up by the federal government to liquidate mortgage loans and other real estate assets held by failed savings and loan associations.



• "Let me tell you, people made millions of dollars suing homeowners back in the day," Williams said. Some of the debt was in the form of deficiency notes: court judgments saying a certain amount was owed even after the property was sold at public auction. But in other cases, Williams said, it was the note, straight up.

For more, see 'Zombie notes' live to haunt deed transfers (Thousands affected by Fannie Mae tactics) (if link expires, TRY HERE).

'Zombie Debt' Buyer Accused Of Tricking Consumers Into Paying On Stale Debts To Restart Clock On Statute Of Limitations Squeezed By Feds Out Of $2.5M

The New York Times reports:

• The Federal Trade Commission signaled on Monday that it would continue to crack down on debt collectors who harass consumers for money they may not even be legally obligated to pay.



• In the second-largest penalty ever levied on a debt collector, the F.T.C. said that Asset Acceptance, one of the nation’s largest debt collection companies, had agreed to pay a $2.5 million civil penalty to settle charges that the company deceived consumers when trying to collect old debts.(1)

***

• Asset Acceptance, based in Warren, Mich., was charged with a variety of complaints, including failing to tell consumers that they could no longer be sued for failing to pay some debts because the debts were too old. The company’s collectors also failed to inform consumers that paying even a small portion of the amount owed would revive the debt — in other words, making a payment would extend the amount of time the collector could legally sue.



• Debt collectors have only a certain number of years to sue consumers. The statute of limitations varies by state, but typically ranges from two to 15 years, Mr. Dolan said, beginning when a consumer fails to make a payment. But borrowers often do not realize that making a payment on the old debt may restart the clock.(2)

For more, see F.T.C. Fines a Collector of Debt $2.5 Million.

For the Federal Trade Commission press release, see Under FTC Settlement, Debt Buyer Agrees to Pay $2.5 Million for Alleged Consumer Deception (Firm Also Will Notify Consumers with "Time-Barred" Debt That It Will Not Sue to Collect).

Go here for more on zombie debts.

(1) For some of the relevant court documents in this matter, see:

• Complaint for Civil Penalties, Injunctive and Other Relief,
• Consent Decree,
• Joint Motion for Entry of Consent Decree.

(2) For more from the FTC on zombie debts, see:

• Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts,
• Tick-Tock, Tick-Tock: Time-Barred Debts: What’s that, and why should I care?,
• Watch what you're doing with time-barred debts.

Rampant Robosigner, Sewer Service Allegations Targeting Zombie Debt Buyers Draw Attention, Action From Maryland High Court

In Baltimore, Maryland, The Baltimore Sun reports:

• [C]ompanies that buy past-due consumer debts and sue to collect have won judgments against Marylanders even though, advocates and regulators say, the documentation to prove those cases often has been very thin.



• "This is a $100 billion-dollar-a-year industry … the sale of 'accounts receivable,' " said Peter A. Holland, who runs a University of Maryland law school clinic that specializes in debt cases. "It's created a crisis in our small-claims courts. There's tens of thousands of cases filed without proof just in Maryland. Nationwide, it's in the tens of millions."



• Debt buyers say problems are unusual. But as nationwide pressure for reform has mounted, an industry group has begun to call for original creditors to hang on to defaulted-account information longer.



• Now Maryland's highest court is about to consider a change in the rules that would make it clear that debt buyers cannot expect a judgment against a no-show defendant without presenting sufficient evidence to back up their claims. A court committee recommended the move in June at the urging of the Maryland Attorney General's Office and the Department of Labor, Licensing and Regulation.



• The chief judge of Maryland's District Court, where almost all these cases are filed, believes reform is urgently needed. Judge Ben C. Clyburn said small-claims courts sign off on more than 200,000 judgments in contract cases each year. Probably two-thirds, he said, are debt-collection matters.



• Clyburn said some debt-buying companies have treated the courts as an extension of their collections offices, counting on the fact that unsophisticated consumers won't stand up for themselves and judges — hearing no defense — will sign off on claims without realizing they're deficient.



• "They're just playing the odds," Clyburn(1) said. When Marylanders do contest the lawsuits, he said, "generally these debt collectors have dismissed the cases because they know if they go to trial, then they can't provide the necessary evidence of their claim."



• When debt buyers purchase defaulted accounts from credit-card firms and other creditors, they pay a cut-rate price for what usually amounts to "only minimal information regarding each debt and debtor," the Maryland Court of Appeals' rules committee concluded.



• They then swear in affidavits that the information is accurate, though they frequently don't pay to acquire documents — such as signed agreements or a list of purchases — to verify the details in the databases they have purchased, the attorney general's office said.



• Consumer attorneys, regulators and other officials — here and elsewhere — say these are not minor matters. Consumers, they say, have been sued twice on the same debt by different debt buyers. They've been sued on debts discharged through bankruptcy. They've been sued on debts they'd already paid off. And some have been sued for debts incurred by other people with similar names.

For more, see A push for more proof in debt-collection lawsuits (Consumer advocates cheer as Maryland's highest court considers a change in rules).

See Justice Disserved: A Preliminary Analysis of the Exceptionally Low Appearance Rate by Defendants in Lawsuits Filed in the Civil Court of the City of New York for a related report on the use of 'sewer service' to score court judgments on unsecured dubious debt.

Thanks to Deontos for the heads-up on the story.

(1) Chief Judge Clyburn is not the only jurist going on the record observing that zombie debt buyers are "playing the odds" when bringing these flimsy debt collection cases. See NYC Judge: "Rubber Stamp" Method Out-Of-Bounds When Granting Judgment To Zombie Debt Buyers Against Unwitting Consumers; Calls Racket "A Game Of Odds"

Go here for other posts on "sewer service."

Zombie Debt Buyer Ordered To Release All Liens, Stop Collection Efforts Stemming From From Judgments Obtained Without Valid WV State License

In Charleston, West Virginia, The West Virginia Record reports:

• Kanawha Circuit Court has entered an order preventing three Cavalry Company debt-buying businesses from collecting debts in West Virginia without a license.



• The order also required Cavalry to stop all wage garnishments and to release all liens filed against West Virginia consumers' property stemming from judgments obtained by its companies before they became licensed.



• The court granted West Virginia Attorney General Darrell McGraw's motion for a temporary injunction against Cavalry. It is also ordered the New York-based debt buyers-Cavalry SPV I, Cavalry SPV II and Cavalry Investments plus a collection affiliate, Cavalry Portfolio Services-to fully comply with the attorney general's investigative subpoena.



• Testimony from McGraw's staff during a series of hearings disclosed that Cavalry debt buyers had filed at least 1,300 collections lawsuits prior to becoming licensed in October 2010. Of those lawsuits, 743 resulted in judgments totaling more than $3 million against West Virginia consumers, with 369 entered by default when the consumers failed to appear or contest the suit.



• In conjunction with the attorney general, the circuit court also ordered Cavalry to send written notices to all consumers affected by the order. After the notices are sent, Cavalry may accept payments made voluntarily by consumers but must first place them into escrow and report all payments received to the attorney general's office. McGraw's office first subpoenaed Cavalry's West Virginia account records in January 2010.



• Cavalry objected to complying with the records request and later asserted that the investigative subpoena could not be enforced once the lawsuit was filed. The circuit court disagreed. There has not been a trial date scheduled yet.(1)

Source: McGraw gets order to stop three debt businesses.

(1) Failure to register their business with the state appears to be a major 'Achilles' heel' for some of these zombie debt buyers. Earlier this year, a ruling by an Illinois appeals court indicated that a debt buyer's failure to register with the appropriate state administrative agency was enough to allow a debtor to undo the damage created by an improperly-obtained judgment, finding that said judgment was absolutely void, and not merely voidable. See:

• LVNV Funding, LLC v. Trice, No. 1-09-2773, (Ill. App. 1st Dist. 3rd Div., March 16, 2011) (modified June 30, 2011),
• Ill. App. Court: Consumer's Effort To Undo Debt Buyer's Money Judgment Will Succeed Where Oufit Fails To Register Bill Collection Activities w/ State.

See generally Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration for an FTC report on dealing with bill collectors & zombie debt buyers.

Elderly Woman Faces Loss Of Mortgage-Free Home As Zombie Debt Scavenger Gets Lien On Premises; Failure To Update State Homestead Exemption The Problem

In New Orleans, Louisiana, WWL-TV Channel 4 reports:

• Imagine someone who has paid off their house and owns it outright, losing that home because of an old credit card debt. Unfortunately for Shirley Simmons, she doesn't have to imagine. It's a real fear she's been living with since the sheriff seized her home two months ago so it could be advertised and sold.

***

• Simmons, a 78-year-old retired Jefferson Parish teacher, owes $15,000 on an old credit card bill. Now, a firm that bought that debt for pennies on the dollar (ie. "zombie debt") from the bank has gone to court to take away her home. “They’re having the sheriff sell her house on May 27 so that they can get their $15 thousand and put her out on the street, if need be,” said Simmons’ attorney, William Cherbonnier.

***

• Attorney Cherbonnier said what makes this possible is Louisiana's homestead exemption from seizure and sale. [...] Right now Louisiana's homestead exemption from seizure and sale only protects $25,000 of a home's value. [...] Cherbonnier said people shouldn't lose their homes over debts like these, and they don't in a number of other states, including Florida and Texas. Both of those states protect the full value of a person's home.

For more, see Lawmakers want to stop credit card companies from seizing homes.

Go here for other posts on zombie debt. zeta

Minnesota AG Tags Major National 'Zombie Debt' Buyer With Robosigner Suit

In Minneapolis, Minnesota, the Star Tribune reports:

• Employees at a giant debt collection company in St. Cloud "robo-signed" thousands of collection documents without verifying their accuracy, allowing false and deceptive lawsuits to be filed across the country against consumers who didn't owe money, the Minnesota attorney general charged Monday.
• The state lawsuit against Midland Funding LLC, one of the nation's largest debt collection firms, is the first enforcement action in the country against a debt collector for robo-signing, Attorney General Lori Swanson said.
• Midland workers admitted signing up to 400 affidavits a day without reading them or verifying whether a debt was owed, according to the lawsuit. Often, the debts were 10 or more years old, known as "zombie debt," that Midland had purchased for cents on the dollar from credit card companies and other businesses, Swanson said.

***

• The Star Tribune reported last June that Midland had obtained $30 million in judgments against debtors in Minnesota from 2005 through 2009, the most of any collection firm. The revelation was part of the newspaper's investigative series entitled, "Hounded," which revealed the aggressive tactics used by debt collectors.
• Encore and Midland are part of the booming debt-buying industry, which purchases electronic databases of billions of dollars of old, charged-off consumer debt from credit card companies, banks, telecommunications firms and others.
• Debt buyers receive just one line of data on each debtor, including the name, an address and the amount, Deputy Attorney General Nate Brennaman said. When purchasing debts, Midland and other companies do not purchase underlying charge slips and contracts to prove money is owed, according to the lawsuit.

For more, see State files suit against debt firm (Collections giant is accused of "robo-signing" documents).

For the Minnesota AG press release, see Attorney General Lori Swanson Charges One Of The Nation's Largest "Debt Buyers" With Defrauding Minnesota Courts And Citizens By Filing "Robo-signed" Affidavits.

Go here for the Minnesota AG consumer release on the zombie debt buyer industry.

Texas Woman Hounded By Zombie Bill Collector Over Debt Belonging To Another Belts Back By Filing Federal Lawsuit

In Tyler, Texas, The Southeast Texas Record reports:

• A Tyler woman is suing a credit collection agency for repeatedly calling her about a debt that is not hers. Seeking $1,000 for each telephone call, Brandy Samuel filed suit against ER Solutions Inc. and Does 1-10 on Feb. 23 in the Tyler Division of the Eastern District of Texas.

• According to the original complaint, Samuel claims the debt does not belong to her yet the collection agency continues to call her between 10 and 20 times per day. She alleges the defendants are rude and abusive, constantly harassing her and telling her to take over the debt. Samuel claims she has demanded that the creditor stop calling her about someone else's debt but the "defendants continued in their harassing tactics."

• The plaintiff alleges the telephone calls violate the Fair Debt Collection Practices Act, the Texas Debt Collection Act and are an invasion of privacy. Samuel is asking the judge to award $1,000 for each violation of the Fair Debt Collection Practices Act, costs of litigation, punitive damages and actual damages including humiliation, anger, anxiety, fear, frustration, embarrassment and emotional distress.

Source: Texas woman sues debt collector over harassing phone calls. zombie debt

NYC Lawmakers Move To Toughen Regs On Debt Scavengers Buying Up, Filing Lawsuits To Collect "Zombie Debt"

In New York City, the New York Post reports:

• The city moved yesterday to toughen regulations against collection agencies, 17 months after a study found debt-ridden New Yorkers are losing judgments worth $800 million each year because they're not showing up for court hearings. Councilman Dan Garodnick (D-Manhattan) said unscrupulous agencies are gobbling up consumer debts for pennies on the dollar to pursue debtors without regard to the law and, perhaps, without serving notices of lawsuits ["sewer service"]. "We've even heard of cases where debt collectors would threaten to have residents deported," he said.

For more, see TARGETING DEBT CHEATS.

Go here for other posts on zombie debt. zeta SewerServiceAlpha

Zombie Debt Buyer Reneges On Oral Settlement Agreement, Moves To Force Sale Of Texas Couple's Home After Already Pocketing $9K, Says Suit

In Beaumont, Texas, The Southeast Texas Record reports:

• A Jefferson County couple has filed suit against a debt purchasing company, alleging the company has reneged on an oral settlement agreement and is now attempting to sell the couple's home.

• Leonard and Beverly Randle claim they had been sued for deficiencies they owed on their credit cards. Defendant Hudson & Keyes LLC(1) obtained a judgment against the Randles for $27,895.69, according to the complaint filed Feb. 19 in Jefferson County District Court.

• The Randles entered into an oral agreement with Hudson & Keyes to settle the matter for $10,000, the suit states. The Randles agreed to make an initial $6,000 down payment, then to pay $200 every month until the debt was paid in full, the complaint says. The Randles claim they have followed the plan and have paid $9,200 of the settlement money.

• "Thus it was to Plaintiffs' great surprise and distress when they learned that Defendant, despite and contrary to the Settlement Agreement, has proceeded with a Constable's sale of property of Plaintiffs at the address commonly known as 4825 Wyatt St. in Beaumont," the suit states. "Plaintiffs are now in desperate straits. They have been notified that the sale of the Property has been scheduled for March 2, 2010."

• The Randles are seeking a temporary restraining order that will restrain Hudson and Keyes from selling their property and, after trial, a permanent order enjoining the firm from selling the property. In addition, they seek other relief the court deems just.

Source: Couple seeks TRO against debt purchasing company.

(1) According to its Web site, Hudson & Keyes is a debt buyer and reseller. zombie debt

Threatened With Imminent Foreclosure, Some Borrowers Move On From Homes Only To Find Out Long After That Premises Was Never Sold

CNNMoney reports:

• Borrowers are discovering that their foreclosed homes are coming back to haunt them -- long after they have moved out.
  
  In these "zombie foreclosures," borrowers move out after their bank schedules a foreclosure auction only to learn months or years later that the auction never took place or the bank never transferred the deed. That means the borrower still technically owns the house and is on the hook for property taxes, fees and homeowners' association dues.

***

• Those debts can then go unpaid for years because the borrower is unaware they owe them, further slamming their credit score and making life after foreclosure even harder.
  
  "The most frustrating part is that I can't move on," said Rose Nathan, a 37-year-old office manager. Nathan lost her South Bend, Ind., home in January 2009, after working out a deal with CitiMortgage to voluntarily walk away in a "deed in lieu of foreclosure."
  
  "On Christmas Eve, the bank called and told me a sheriff's sale was coming and I had to move out right away," she said. "So that's what I did -- seven days after New Year's." She sold her belongings and moved to Hawaii.
  
  Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. The bank had never taken possession of the house.
  
  Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about. Nathan said she knew of no liens at the time of the transaction. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal.
  
  Meanwhile, the unpaid debt has crushed Nathan's credit score. The deed-in-lieu alone lowered her score by 80 to 120 points, but the unpaid debt meant her credit kept taking a hit. Eventually her credit card companies cut her off, even though she said she was making her payments.
  
  Her auto loan now carries a 25% rate. Her car insurance premiums have skyrocketed. She can only afford a one-bedroom apartment where she lives with her three kids. And forget about buying another home. "Nobody will give me a mortgage," she said.
  
  Citi declined to comment on the case. Nathan said she has since paid off the lien with the hope that Citi will take the deed on the home..

For more, see Zombie foreclosures: Borrowers hit with debts that won't die.

Pennsylvania Court Gives Zombie Bill Collector The Boot Over Use Of Crappy Paperwork To Collect Dubious Debt

Valparaiso University School of Law Associate Professor Alan White writes in Public Citizen's Consumer Law & Policy Blog:

• A Pennsylvania appeals court has affirmed the dismissal of a debt buyer lawsuit on an old credit card account, because the debt buyer could not prove the debt. The credit card agreement and account history could not be admitted under the business records exception to the heresay rule. The debt buyer could not testify that the credit card account records were made contemporaneously and in the regular course of the issuing bank's business.

• More importantly, the contract itself was not proven. The debt buyer offered a standard form cardholder agreement dated seven years after the consumer's account was allegedly opened. In addition, the interest rate charged by the debt buyer was higher than the "agreement" called for, and the "agreement" did not provide for the attorney's fees being sought.

• As many consumer attorneys know, the lack of evidence is endemic to the debt buying industry. Pools of delinquent accounts are often sold with "media not readily available", i.e. with no account histories or signed contracts. Given that signed cardholder agreements no longer exist, collection attorneys are often hard-pressed to produce anything that could be called a contract to support their claim.

• The Federal Trade Commission issued a report on related debt buyer practices last July, but offered only recommendations directed to state courts to discourage these practices.(1) It remains to be seen whether the CFPB will take regulatory and enforcement action under the Fair Debt Collection Practices Act, which after all, prohibits false representations of the validity or amount of a debt, including false statements that are reckless or negligent, i.e. debt buyers alleging amounts owed based on little more than a spreadsheet they purchased for 0.6 cents on the dollar.

• The Court's citation of Judge Boyko's decision dismissing foreclosure cases for similar want of proof illustrates the continuing erosion of the credibility and deference the banking industry once enjoyed with state courts. HT to Cary Flitter.

Source: Debt Buyer Dismissed.

For the court ruling, see Commonwealth Financial Systems, Inc. v. Smith, 2011 PA Super 30 (Pa. Super. February 14, 2011).

(1) For the FTC report, see Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration. zombie debt buyer

'Zombie Debt' Buyer Slammed For $300K+ In Damages, $100K+ In Consumer's Attorney Fees For Pursuing Lawsuit On 'Stale' Debt

Buried in a story on explosion of debt collection lawsuits by 'zombie debt" buyers, which recently appeared in The Wall Street Journal, contained these excerpts:

• Once debt buyers sue to retrieve debt, they are subject to state laws that impose a statute of limitations, often between five and seven years after the borrower stops making loan payments.

• In 2007, CACV, a unit of debt collector SquareTwo Financial Corp., sued Timothy McCollough in state court in Montana to recover $3,800 on a credit card from J.P. Morgan Chase & Co., and another $5,500 in interest, collection costs and $480 in lawyer's fees.

• Mr. McCollough wrote to the court in March 2008, explaining that he had been living on Social Security income since suffering a head injury in 1990. He says that he hadn't made any payments or used the credit card for more than eight years, putting his account beyond the state's statute of limitations for debt collection. He asked the court to dismiss the suit, saying: "This is the third time they have brought me to court on this account. Do I have to sue them so I can live quietly in pain?"

• In April 2009, a judge awarded damages of $310,000 plus $108,000 in legal fees and costs to Mr. McCollough.

Source: Boom in Debt Buying Fuels Another Boom—in Lawsuit.