Michigan Collection Law Blog

I have talked about this issue once before, but a case just popped up showing me that not all of you are listening to my warning. Debt Collectors beware....a consumer does NOT have to posit a dispute to a consumer debt in writing. The Fair Debt Collection Practices Act ("FDCPA") has no such requirement. As debt collectors, we may all want our interactions with consumer/debtors to be in writing, but alas we do not live in a perfect world. See Richeson v Javitch, Block and Rathbone, 576 F. Supp2d 861 (2008).

In Richeson, the Plaintiff consumer alleged he was the victim of identity theft in connection with the debt that JBR was hired to pursue. JBR sent him a letter that stated:

Balance Due - $ 10,141,27

This law firm represents the above creditor concerning the above balance due, which was placed with use for collection and such other action as necessary to protect our client's interests.

Although we are a law firm, at this time, no attorney has evaluated your case, or made any recommendations regarding the validity of the creditor's claims, or personally reviewed the circumstances of your account. If you fail to contact this office, our client may consider additional remedies to recover the balance due.

To discuss this matter, please contact: Shannon Green at (800) 837-4601 (toll free) weekdays during business hours.

Unless you, within thirty days after receipt of this notice, dispute the validity of this debt, or any portion thereof, the debt will be assumed to be valid by us. If you notify us in writing within the thirty-day period that the debt, or any portion thereof, is disputed, we will obtain verification of the debt and a copy of such verification will be mailed to you by us. Upon your written request within the thirty-day period, we will provide you with the name and address of the original creditor, if different from the current creditor.

We as a debt collector are attempting to collect a debt and any information obtained will be used for that purpose.

Our request that you contact us by telephone does not affect the requirement under federal law that to obtain verification of the debt, you are required to notify us of a dispute in writing.

The court looked to the two requirements that JBR had under the FXCPA. The first requirement to inform the consumer that JBR will assume the debt to be valid unless notified by the consumer. The FDCPA does NOT require the consumer to posit a dispute to the debt in writing. But....the FDCPA requires a collector to inform a consumer that if the consumer wants written validation of the debt, that the consumer must make this demand in writing. In this case, the court noted that JBR complied with both notice requirements and did not violate the first requirement by demanding that the consumer posit his dispute in writing.

Moral of the story:

As a debt collector, be aware of the two separate and distinct notices that you must give the consumer. The debt collector must inform the consumer of his right to dispute the debt. The consumer does NOT need to provide this notice in writing. The second notice requirement requires the debt collector to inform the consumer of his right to get written verification of the debt. This requirement requires a written request from the consumer. Do not get these two requirements mixed up.

This time of year, I am pleasantly reminded of our office wide directive to treat debtors as our customers. Over the years, I have seen debt collectors use old school techniques of yelling at debtors and threatening them with legal action amongst other things. I have also seen debt collectors treat debtors with respect and courtesy as we would use with our clients. Many years ago, I came to the conclusion that there is little difference between our clients and their debtors. We talked to both of them with the same degree of courtesy and respect. The difference in collection results is astounding. Treating people kindly as if you were talking with your family member results in larger collections and frankly, a greater commitment by debtors to satisfy your client's obligation.

I also found that by giving debtors a break by allowing them to miss a payment or two, (as long as they call in advance) buys you the kind of goodwill from the debtor that a debt collector cannot get through threats and intimidation. On larger balances, we like to "partner" with our debtors to get an obligation paid off or otherwise satisfied in a fashion that makes everyone feel good about the deal.

I only tell you this because many of the cards and a few of the holiday gifts that my office receives this time of year, come from our debtors. That makes me feel very very good about what we do and how we do it. I am passing this along to you because in these hard economic times, everyone needs a break and a little kindness goes a long way.

While I may have put this post under Debt Collection Tricks and Traps on my blog, it is really neither a trick nor a trap. Its just good business to treat people with respect. Unfortunately, I just couldn't find a better category for this post.

Continue reading "A better way to collect....show respect to your customers" »

I debated long and hard about even writing this blog post, but lets face it. There is a white elephant in the middle of many peoples' homes and lives. Many people are facing down a foreclosure and discover that they are making payments on a house that is worth less what they owe. A good friend of mine and fellow lawyer, Lex Kuhne, emailed an article to me today that pushed me over the edge and forced me write this blog post. Kathleen Pender wrote an article entitled "Are you an idiot to keep paying your mortgage?" that speaks to this very issue. She also talks about legislation that has recently been passed that would allow delinquent consumers whose mortgages are held or guaranteed by Fannie or Freddie to reduce their payment via lower interest rates and 40 year amortizations. Her article is wonderful and very enlightening. I recommend that you read it as soon as you are done with this blog post.

Years ago, I began studying Zen Buddhism. Its not a religion, but rather a way of seeing things. I won't bore you with the details other than to tell you that in order to make sound decision as to whether you should refuse to make that next mortgage payment, you must get rid of your ego. I have been counseling many clients in the last few months about whether they should make their next mortgage payment or not. When they tell me that they are having a very difficult time making the next payment on their homes which are worth less than what they owe (sometimes by hundreds of thousands of dollars), I ask them why not just walk away from the home and the mortgage debt. Their first reactions are generally, "what will the neighbors think" sort of thing. I then remind them that many of their neighbors are in the same situation. The clients may retort with "it makes me feel like such a loser or a dead beat." I then ask them if they are responsible for today's national economic disaster. They respond "no.." I ask them if they are a victim of the disaster. They respond "yes." I then ask them since when do we label victims as losers? I then remind them that they have familial obligations to their spouses and kids to keep a roof of their heads although it does not have to be the very same one that they have today. Once we get past the ego/hurdle of what other may think of us or even of what we think of ourselves, we can then talk about the pros and cons of walking away from a mortgage obligation that may be wrecking our lives.

Pros:

1. A large mortgage payment can be cut down substantially to a rental payment for a dwelling of comparable size and comparable location today. This would lead to a consumer savings thousands if not tens of thousands of dollars per year to be used towards other things.

2. Frequently, banks will bid the full amount of the debt that you owe on the mortgage at the sheriffs sale. If the banks bids the full amount that is due, then in Michigan at least, there is no longer any debt that you owe.

3. For many people, being free from a burdensome mortgage payment is the difference between existing and living, not only financially but emotionally. It is definitely an option to consider in many circumstances, especially when the market value of the house is dwarfed by the outstanding mortgage value.

Cons:

1. Your credit report will be wrecked for 7 years. While words such as "foreclosure" and delinquent do not figure into your FICO score directly, future potential credit grantors can and do read these words. They do not look upon the word "foreclosure" favorably. Will they be more lenient with this word in light of our currrent economic mess? I don't know. History tells us no, but who knows. We have never had a housing crisis like we are experiencing now. Perhaps there is room in their hearts for such understanding, but I would not count on it. Derogatory information stays on your credit report for up to 7 years. Bankruptcy stays on your credit report for up to 10 years.

2. Getting a new mortgage on a new residence will be a significant challenge. Plan on renting a dwelling for a number of years until your credit report recovers somewhat form the foreclosure. Better yet, if you have not defaulted on your mortgage yet, but have decided to exit from your home, start looking for a new home and mortgage NOW. You might even want to consider purchasing a new home on a land contract before go into default on your current home.

Things to Consider Before deciding whether to go into foreclosure:

1. The legal environment is changing quickly in favor of the consumer. It started off with at least one judge in Illinois refusing to allow banks to foreclose on homes. Today, Congress has passed legislation that gives certain consumers rights that they have not had before, to lower their monthly mortgage payment. Consider this option seriously as it may save your home.

2. If you do go into foreclosure, you may be able to stay in your house up to 1 year without making any mortgage payments. Banks will generally wait for you to miss 3 payments before putting you into a foreclosure. It might take another 2-3 months before it goes to a sheriff's sale. You then have six months within which to redeem the property. During that redemption period, you have the right to stay in the home. Altogether, you can stay in your property for about one year from the date that you miss your first mortgage payment to the time that you will be forced to leave. If you decide to not redeem the home, you will have saved twelve mortgage payments. You may think this is unethical, but our system allows you this advantage. Go use it.

3. Banks typically do NOT want your home back. They are in the lending business (or used to be) and not in the real estate business. If they foreclose on your home, the bank has to hire a compnay to make sure that the property stays in good condition, free from vandalism, pipe freezes and such. Moreover, the bank has to pay the taxes on the property. The bank incurs all of these costs while holding the property in this slow moving market. Remember this when attempting to make a new deal regarding your mortgage.

Continue reading "Zen and the art of skipping that next mortgage payment..." »

The Law- Under the Fair Credit Reporting Act ("FCRA"), credit reporting agencies such as Transunion, Experian and Equifax, all have a duty to conduct an investigation into a consumer's dispute regarding the accuracy or completeness of an item appearing on a consumer's report. 15 USC 1681i. These items are frequently called "trade lines." But the sad truth is that when it comes to identity theft, none of the credit reporting agencies conduct a reasonable reinvestigation into the dispute, because they are simply do not have policies and procedures in place to do so.

Lately, I have sued two of the credit reporting agencies and a number of banks under the FCRA. You see, my clients all had their identities stolen by a family member who had access to my clients' names, address and social security numbers. The identity thief used these bits of information to obtain mortgages in my clients' names. Even though the id thief has confessed to his crimes, gave depositions admitting to his misdeeds and even went to prison for it, the banks and credit reporting agencies STILL did not remove the derogatory trade lines that were caused by the id thief, from my clients' credit reports. Pretty amazing, huh? Wait...it gets better.

The credit reporting industry is operating in the stone age. In order for a consumer dispute an item on his credit report, he has to place a dispute with the credit reporting agency. The consumer has to give the agency his name, address and social security and then identify the trade lines that he considers bogus or in error to the CRA. The CRA then has 5 days to pass that information on to the furnisher of that information ("Furnisher"). WIthin 30 days both the CRA and the Furnisher have to conduct their investigation into the consumers dispute or they have to remove the trade line from the consumer's credit report. Sounds simple right? Here is the RUB.....The CRA and Furnisher compare 3 and only 3 bits of data between just the two of them in order to verify or remove a trade line. They compare the name, address and social security number between in their respective files as those 3 bits of data appear in the other's records. If these bits of data compare favorably, then the trade line stays on the consumer's report. I was stunned to learn this.

In the deposition of my clients' case, I asked both CRAs (who shall remain nameless), how in the world can they detect true identity theft by just comparing those bits of data, and each admitted that their procedures could not detect true identity theft involving a consumers actual name, address and social security number!. But wait, it gets better. Neither of the CRAs allow their investigators to use the internet, the telephone or a fax machine when conducting an investigation into a consumer dispute. That means that the CRA's investigators cannot go on line to see if there is any validity to a consumer's dispute that his identity was stolen. The CRA's investigator cannot check with court records on line or even call the consumer himself to get more details. Each CRA and many Furnishers actually prevent their investigators from conducting reasonable reinvestigations into consumer's disputes. Unfortunately this leads to only resolution for a consumer who is victimized by an identity thief and is again victimized by a bank and/or a credit reporting agency....litigation.. Hey, I am not just saying this because I am a lawyer who has litigated these cases. I am telling you this because the CRAs do not give their investigators enough resources in today's electronic age to do their jobs right. It may be because the CRAs get bombarded with disputes on a daily basis and only give their investigators a certain number of minutes to get through a dispute. I can't tell you why the CRAs do not just call Comcast and pay the $35 monthly fee and hook up their investigators. I can only tell you that the CRAs simply do NOT give their investigators these tools. Hence, until their investigators are provided these basic necessities, the only way to resolve an identity theft issue with the CRA is to file a lawsuit for damages and attorneys' fees.

Continue reading "OMG....The CRA's are sooooo F'ed Up when it comes to ID theft!!!!" »

In a great new case that was recently issued in a District Court the 6th Circuit in Ohio, Judge Carr wrote a great opinion reaffirming the fact that in order for Plaintiffs to obtain emotional damages under the Fair Debt Collection Practices Act ("FDCPA") and the Fair Credit Reporting Act ("FCRA"), they need not prove damages pursuant to stringent state laws. See Davis v Creditors Interchange, 2008 Lexis 94906. In Davis, the court was faced with the question of whether a federal court has to apply the state law standards when deciding the issue of emotional damages in the context of an FDCPA or and FCRA case. The court held that no, it does not need to draw on the state standards for deciding emotional damages. While this issue has still not been ruled on by the 6th Circuit Court of Appeals, this decision follows a number of District Court opinions in the 6th circuit holding that federal courts do not and should use state standards for determining emotional damages.

In holding that federal courts should not look to state laws when reviewing emotional damages under the FDCPA and FCRA, the court based its decision in Davis on several solid concepts:

First, Congress intended for the FDCPA to create a more effective weapon against abusive debt collection practices than provided by existing state law remedies. Second, Congress designed the FDCPA to create a uniform law governing debt collection. Third, the structure and purpose of the FDCPA closely track the Fair Credit Reporting Act and courts interpreting the FCRA have concluded that "actual damages for emotional distress can be proved independently of state law requirements" for intentional or negligent infliction of emotional distress.

The District Court then noted a number of other decisions out of other circuits that came to the same conclusion. However, like everything else in life, there are limits as to how relaxed this standard is. While state laws regarding intentional and negligent infliction of emotional distress require a Plaintiff to prove and quantify damages with a degree to certainty, while federal standards are not this stringent, there are standards. in fact, the FDCPA at 15 USC 1692k(a)(1) requires a Plaintiff to prove " definable actual damages" in order to recover anything beyond statutory damages. While this standard was not defined in the Davis case, it does prove that there is some standard by which a Plaintiff must show emotional damages, if not by the laws set forth by the state.

Conclusion - Plaintiff's attorneys should always allege emotional damages under both state law and under the FDCPA and FCRA when pursuing claims. While these damages under state law may ultimately denied to the Plaintiff, they may be recoverable in that same case under the federal statutes.