During my speech, I informed the crowd how I had located a ghost debtor on Facebook. A ghost debtor is someone who is off the grid. He has no home address that I could find, no car registered in his name and no real estate. I could not find this guy until I found him on Facebook and then I was able to locate all sorts of information on him. Anyways, I sent this debtor a friend invitation which he accepted. Ms. Mattieson then asked me "Weren't you required to give him the mini-Miranda when you send your friend invitation on FB?" This requirement under the FDCPA is where you have to warn a debtor that your communication to him is from a debt collector.

Boy...she got me right there...on the spot...uh...uh....may be. She might have been right. But, as I thought about it through lunch, it occurred to me that no, I did not need to give this guy the mini-Miranda when I sent him a friend invitation through FB because my communication was not in connection with the collection of a debt.

After lunch, I saw Chiara in the parking lot. As some of you may know, I hold a first degree black belt in karate. I told Chiara that as long as we were in the parking lot....that I had an answer for her question. She was as gracious and friendly as could me as we discussed the pros and cons of the Fair Debt Collection Practices Act.

Kudos to Holzman Ritter and Corkery for hiring as an intelligent and astute attorney as Chiara Mattieson. Chiara, if you read this post, I want you to know that it is attorneys like you that make me proud to be part of our profession. You intellectually challenged me and by making me thinking through an answer, you made me that much of a better lawyer. Thank you.

I will be ready for yournquestions next time! :)

Zombie Debt is debt that simply refuses to die. in this case, the Defendant was not the person who had originated this debt and yet it has come back to haunt Riley.

Nevertheless, to prove an account stated, Unifund was required to show that the debtor accepted the balance as accurate by making payments on it or by failing to object to it. The District court saw things Unifund's way and granted summary disposition. The Court of Appeals saw it differently.

The COA held that merely showing that payments were made on the account was insufficient to show that the Defendant, himself, made those payments. Moreover, the Defendant had objected to the credit card account on his credit report. Under the Fair Credit Reporting Act, the credit reporting agency is required to report that dispute to the furnisher of that information. The court has viewed this as as an objection to the account.

The Debtor/Riley protected himself well in this action by asserting his rights under the FCRA.

Moral of the story - Collection Attorneys - Purchased Debt is usually difficult to collect and highly defensible. Most of the time, you don't have the contract and have to punt with the Account States claim. An account stated claim can be defeated because you have to rely, to a far greater extent, on the debtor's testimony.

Moral of Story to consumers - You have to be vigilant with your credit report. If there is something on your report that does not belong on it, posit your dispute to the credit reporting agency. It will not only keep your credit report clean, resulting in a higher credit score, it will prevent you from getting stuck with Zombie debt like Unifund attempted to collect from Riley.

I have decided to form an division in my firm dedicated strictly to helping consumers; its called Michigan Consumer Credit Lawyers. The website is still under construction. When it is complete, I will let you know. I anticipate that it will be live in the next few weeks. This new website will contain several self help videos for consumers on issues from what to do when they get sued to how to handle an abusive debt collector. Take heart as we also republishing our Nitzkin and Associates website with many instructional videos too.

The MCCL blog is already up at www.micreditlawyerblog.com. On this new blog, I will talk only about issues that affect consumers who have been wronged by debt collectors, banks, credit reporting agencies and anyone else that would treat a consumer like crap. MCCL's website will be up shortly to coach consumers on what to do when they are faced down by their larger and financially better heeled opponents. We are here for them to even those odds.

We are still and will always be debt collection attorneys. However, we mostly represent businesses and do commercial debt collection and hence, we really have no conflict of interest. I, Gary Nitzkin, will continue to write this blog coaching debt collectors on how to avoid violating the FDCPA and the FCRA.

If you have any questions, please feel free to email me, Attorney Gary Nitzkin or call me, tool free at 877-293-2882.

a. Your client posited its consumer dispute with the credit reporting agency (and not just the creditor/furnisher directly). You or your client's failure to notify the credit reporting agency of your client's dispute is fatal to your FCRA claim. You see, under the statute, a credit reporting agency's duty to conduct a reasonable reinvestigation does not begin until it receives notice of the dispute. Notifying the furnisher of the dispute is insufficient to trigger any duty to conduct a reasonable reinvestigation by the credit reporting agency.

b. Be sure to plead that that the credit reporting agency notified the furnisher of your dispute. If you are uncertain as to whether this happened, look for facts that would support a good faith believe to allege that this happened "upon information and belief." Under the FCRA, a furnisher's duty to conduct its reinvestigation is not triggered until the credit reporting agency notifies it of your client's dispute. Some courts do not require this to be pled in the complaint, but yet, some courts do. For example, Judge Avern Cohen who sits in the United States District Court for the Eastern District of Michigan requires this allegation in FCRA complaints. I just finished reading an opinion in which he dismissed the Plaintiff's complaint for failing to allege that the credit reporting agency notified the furnisher. I have a world of respect for Judge Cohen and his opinions. I can safely say that he is an incredibly intelligent man and history will undoubtedly remember him as an excellent jurist. BUT......if you are going to file an FCRA complaint in the Eastern District of Michigan and your case is assigned to Judge Cohen, be sure that you follow my advice.

The State’s civil complaint alleges that Allegro promoted a risky practice known as debt settlement, in which consumers stop making monthly payments hoping to encourage creditors to write off the debt, reclassify it as less collectible, and agree to settle for a greatly reduced payment. The complaint states that “defendants are attempting to gain this benefit by purposefully and artificially lowering creditors’ assessments of the quality of the customer debt, thereby inducing creditors to accept less to settle accounts. The consequence of this lowered credit standing is a lower credit rating for the consumer, more fees for the service provider, less money to the creditor, and more overall problems for the consumer.”

Attorney General King said, “Alabamians who are suffering hardship and distress during these severe financial times must be protected from exploitation and false solutions that may cause even greater harm. We contend that these defendants were operating a massive scheme that reached across our nation and unscrupulously targeted frightened and desperate consumers. With Alabama’s unemployment rate now at a record 25-year high of 9.8 percent, and many of our people struggling through no fault of their own, this is a particularly contemptible violation, and we will not tolerate it.”

Here is my problem: I hope that there is more to the story than this because in my opinion, Mr. Nalms was doing the right thing for his clients and the AG should not have shut him down. Many consumers who are on the precipice of financial disaster make the minimum monthly payments on their credit cards. The credit card companies love these people because they will be customer for the rest of their lives by making these minimum payments only. If a consumer who has consistently made these monthly payments calls the credit card company to ask for a restructuring of the debt, it is highly unlikely that the credit card company would give the consumer any relief. So, then, how is a hard working Joe supposed to get a break when he is drowning in debt? STOP MAKING THE MINIMUM PAYMENTS TO THE CREDIT CARD COMPANY. Sorry, Mr. A.G., but this is a simple fact of life that no creditor has any incentive to renegotiate a debt with a paying debtor.

Yes, when the consumer stops making the monthly payment, his credit rating will suffer. But most likely, the credit score has already been depressed because the credit cards are maxed out or the consumer has missed some payments here and there. Hence, the consumer's credit score probably does not have that much further to drop.

I can only guess that the Alabama A.G.'s better funded constituent banks got wind of Mr. Nalm's practice and strategy and decided to make an example of him. Mr. Nalm's strategy, again as far as I can see from what is on line, was right on point and he not only did nothing wrong, his thinking was right on point. I hope the Alabama A.G. has some money in reserve somewhere so when Mr. Nalms brings his subsequent lawsuit against the State of Alabama, that they can compensate him and his clients for screwing the attorney and his clients.

In this case, the debtors had challenged a proof of claim that had been filed by a debt buyer. When the debt buyer could not produce the original documents to support the claim, it withdrew its claim. The debtors were not happy with that result, alone. The debtors asked the court for sanctions against B-Line, the debt buyer for not adequately investigating its claim prior to filing it, pursuant to Bankruptcy Rule 9011(b). B-Line dodged a bullet in the trial court as the judge said that B-Line in fact did not adequately investigate its claim but did not award sanctions.

On appeal, the 6th Circuit court reversed the lower court and held that B-Line's pre-filing investigation was reasonable. The court found the fact that B-Line received a warranty as to the validity of claims it purchased, coupled with B-Line's cursory review of the claims, as persuasive that the claims that B-Line filed in the bankruptcy court, were filed in good faith and in compliance with its pre-filing obligations under Rule 9011(b). While the court did not find that these claims were, in fact valid, the court did find that having received such warranties from its seller, made B-Line's reliance upon the validity of these claims, reasonable and hence, its pre-filing investigation requirements were met in good faith.

Moral of the story to those filing claims on purchased debt in the bankruptcy court.- I am no fan of purchased debt. But if you are filing proofs of claims on these debts in bankruptcy court, be sure that the debt buyer's purchase agreement through which it bought these debts contains warranties that the claims are valid. Furthermore, be sure that your client has thoroughly vetted these claims for obvious anomalies such as incorrect social security numbers and bad addresses.

Query for you consumer lawyers: If this case had gone the other way and the 6th Circuit held that B-Line had violated its duties under Bankruptcy Rule 9011(b), do you think the debtors would be potential plaintiffs for a claim under Fair Debt Collection Practices Act?

When we get involved in loan modifications for our clients, we ask for many of these documents in advance. Looking at this information and talking with our clients, we like to see if the reason that the the client cannot pay their mortgage loan is a temporary or a permanent condition. This is something that the lenders are keenly interested in as well. For example, if the reason why someone is unable to pay their mortgage is due to a temporary condition such as a job loss, then he may be a better candidate for a loan modification than someone whose adjustable rate loan just rose to a point that they can no longer pay. The documents that the banks are looking for are helpful in in answering this questions.

If you are even thinking about asking for a loan modification, start getting your documents together. I would advise against asking the bank for a face to face meeting and then starting your hunt for the documents.

The Sixth Circuit Court of Appeals dismissed the case by holding that the BFE defense applies to mistakes of law as well as mistakes of fact Jerman v Carlisle, 538 F.3d 469 (2008). The Sixth Circuit held that a plain reading of the FDPCA shows that the BFE defense does not exclude mistakes of law and so, neither should the court. This is a very interesting holding, indeed. Cases that have examined the BFE defense under the FDCPA, have mostly held that this defense applies only to errors of fact. The Sixth Circuit holding in Jerman was really breaking new ground with this holding.

So why did the United States Supreme Court accept this case for review? Ms. Jerman had turned her FDPCA lawsuit into a class action against the defendant law firm. If the defendant loses this case, it stands to pay a huge sum in attorneys’ fees plus class action damages of $500,000 or 1% of the law firm’s net worth, whichever is lesser. As I read the oral argument, it became apparent to me that at least one Justice had an agenda for protecting attorneys.

Three attorneys argued this case before the Supreme Court. Mr. Kevin Russell argued on behalf of Karen Jerman, the Plaintiff/Petitioner. Mr. William Jay argued on behalf of the Solicitor General, Department of Justice, supporting Ms. Jerman’s position. Finally Mr. George Coakley argued on behalf of the Defendant/Respondent law firm.

In my opinion, Justice Breyer’s pointed questions and comments indicated that he was interested in protecting lawyers. In my opinion, he seemed to be leaning towards affirming the Sixth Circuit. Unfortunately, I think that Mssrs. Russell and Jay had the better arguments before the court. I found Mr. Russell’s arguments quite persuasive when he pointed out that:

 The bona fide error defense speaks only to mistakes of fact and not to mistakes of law;
 Had Congress intended to include mistakes of law in the Bona Fide Error Defense, it would have expressly included such language in the statutue;
 Courts should not expand the Bona Fide Error Defense to include mistakes of law simply because it may result in an unfair consequence to the lawyer defendants;

Mr. Jay advanced an excellent argument against extending the BFE defense to include mistakes of law. He noted that several other statutes, including the Truth in Lending Act, a companion consumer credit statute, include a BFE Defense and none of the other statutes or the cases construing them have included mistakes of law as part of those BFE defenses.

As a collection attorney, I was rooting for Mr. Coakley. My colleagues and I are depending upon him to represent us and convince the Supreme Court that the Sixth Circuit decision in Jerman was correct. Unfortunately, I did not find Mr. Coakley’s arguments nearly as persuasive as Mssrs Russell’s or Mr. Jay’s.

Mr. Coakley began his argument by looking at a plain reading of the statute and then moved quickly into conceptual analogies that were more heady than persuasive. He then argued that some courts had construed the TILA’s BFE defense to include mistakes of law as well as fact. He then argued that Congress amended the TILA to definitively exclude mistakes of law from the TILA’s BFE defense. Although Mr. Coakley properly argued that this indicated that Congress intended to treat the FDPCA and the TILA as different statutes, this argument proved too much and subsequently, was Mr. Coakley’s undoing.

Justice Scalia noted that there were no appellate decisions construing the TILA BFE defense to include mistakes of law prior to the 1980 Congressional amendment to that statute. Justice Scalia then accused Mr. Coakley of misleading the court by implying that Congress had amended the TILA in light of court decisions construing that statute’s BFE defense as including mistakes of law. Any litigator knows that his ability to persuade a court is directly tied to his credibility. If the judge does not trust you, the court will put little credence in what you have to say. Mr. Coakley, in my opinion, shot himself in the foot by advancing the argument that Congress amended TILA’s BFE defense due to court decisions construing that defense as including mistakes of law.

I will let you know when the court rules on this case.

The FDCPA contains a defense to debt collectors who get sued for violation of this statute. The "Bona Fide Error" Defense ("BFE Defense") as it is commonly called, states:

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."

There is a major issue with the Bona Fide Error Defense upon which the circuit courts disagree. The major question with the BFE Defense is whether it applies to mistakes of law as well as mistakes of fact (clerical mistakes). Not only are the circuits in disagreement on this issue, but we have competing and contrary decisions from within our circuit (6th Circuit) alone. The United States Supreme Court in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA is going to take up the issue. This is going to be a real nail biter for every debt collector (and the defendant law firm.).

In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA, ("Carlisle"), the defendant law firm was hired by Countrywide Bank to foreclose on Ms. Jerman's mortgage. In connection with its lawsuit to foreclose on Jerman's mortgage, Carlisle attached a Notice Under the Fair Debt Collection Practices Act which provided, among other things, that:

the debt described herein will be assumed to be valid by the creditor’s law firm [Carlisle] unless the debtor(s) . . . within thirty (30) days after receipt of this notice, dispute, in writing, the validity of the debt or some portion thereof.

The FDCPA does NOT require a consumer to dispute a debt in writing. The statute does require a consumer who wants validation of the debt, to make that demand in writing, but there is no like requirement for disputing the debt. Sounds a lot like splitting hairs, huh? Nevertheless, this fearsome fight has a lot at stake as the BFE Defense is substantial. Frequently, it is the only defense that a debt collector has to a FDCPA lawsuit. Hence, the scope of this defense will have a major impact on the outcomes of future cases.

Ms. Jerman (and her attorneys') have asked the District Court for class action certification of this lawsuit. Carlisle has argued, persuasively, that it is entitled to the BFE Defense because such defense applies not only to mistakes of fact, but mistakes of law. Again, whether this is true or not is currently up for grabs. There are cases around the country that hold that the BFE Defense only applies to clerical mistakes. In fact, this view was starting to gain momentum amongst the circuits and is well on its way to becoming the majority view.

There are, however, other cases, that state that the BFE Defense applies only to clerical mistakes. These cases typically rely upon the BFE Defense cited in the Truth in Lending Law, a companion Consumer Protection Statute to the FDCPA. The BFE Defense in TILA, indisputably applies only to clerical sorts of mistakes.

The Supreme Court has docketed a hearing on Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA for January 13, 2010. I will keep you, my good reader, posted as to what happens next!

American Corrective Counseling Services is a collection agency based in California. It was involved in helping Pennsylvania merchants recoup funds on bad checks. Unfortunately, it got a little carried away. It, allegedly, sent letters to debtors on letterhead that was purportedly from district attorneys. These letters threatened the debtors with criminal action if they failed to not only pay the bad check, but if they failed to pay a $170 fee for an “accountability class.” Indeed, according to a report by the Associated Press, one elderly woman who wrote a check for $27 to Kmart, which bounced, was told she would have to pay fees of $72 to clear the matter up, "plus another $170 for the accountability class." The case is entitled Del Campo v American Corrective Counseling, in the 9th Circuit. The violations of the Fair Debt Collection Practices Act, in this case, are enoromous.

A class action lawsuit was filed against American Corrective Counseling Services. It settled the case for $2.55 million.

This morning, I received the following email from Mr. Cook:

Dear Gary, I recieved (sic) an email this morning from Mr. Liguo regarding an email that was sent to him stateing (sic) that the payment has been sent to your office in the full amount that was requested. According to the agreement please deduct your precentage (sic) , my client will be sending me the account information for the transfer of the balance. I will then be sending you the account information for the balance transfer.

Sincerely,

David Cook
481 University Avenue, Suite 510
Toronto, Ontario M5G 2E9
Phone: (647) 831 6954
Fax: (416) 800 9908
Email: attorneydavidcook@aol.es
www.criminalbusinesslawyers.com

Magically, I also received a check from the alleged debtor, Ideal Fabricators, for $550,700 this morning, drawn on a bank called California Bank & Trust. The package arrives from an expediter named "Purolator." The check contains no address for Ideal Fabricators. The package has a return address of Ideal Fabricators, Inc. 481 University Ave, Mississauga, Ontario, M5G2K1. The package contains a cove letter from Ideal Fabricators (no address or telephone number on the letterhead), apologizing for the late payment, informing me that they had a bad year but are now on the road to prosperity. They wish me a good year, too. Am I going to deposit this check?? NOOOOOOOOO!!!!!!!!!

Why not?

This is a scam. I called Ideal Fabricators. The have never head of me, Mr. Cook or the alleged creditor in this case. They never wrote such a check. OK, I think, its time to do my civic duty and get the authorities involved.

I called the F.B.I. this morning and explained that I was the target of this scam, but did not get taken. I was 1 minute into my story when the young lady told me that this is a Secret Service type of case. She gave me the phone number of that agency and I called.

The Secret Service told me that they could not do anything about this case because the alleged bad guy was in Canada. They referred me on to the Federal Trade Commission. The FTC has no more authority to after these bad guys than our heavy hitters such as the F.B.I. or the Secret Service.

Nevertheless, I tried to call the FTC, but could not get through. OK, I tried to do my duty, but no one was interested in helping me. So here I am now, telling you about this scam so I can help you.

I know that in the next few days, I am going to get a call or email from David Cook asking telling me that his client has an immediate financial need and if I would not mind wire transferring the proceeds to a certain bank for him. This is how the scam works. In ordinary circumstances, I go on line and verify whether this check has cleared or not. I will notice that it has cleared and then wire transfer this guy several hundreds of thousands of dollars. When the check comes back as no good, the bank is going to ask me to reimburse it. By not depositing this check, I am going to save a lot of nice people, some large head aches.

LAWYERS - Moral of the Story -

1. Be very careful with whom you do business, especially over the internet. Everyone has a website today. Look your client or referring attorney's website to see if it makes sense. Mr. Cook claims to be an expert in most areas of the law. Pretty impressive, huh? That alone was enough to put me on guard regarding this guy. The bad guy may have gone to great lengths to prove that he is who he purports to be, except for getting an education. "David Cook" had a website to show that he was an attorney, albeit fraught with spelling and grammatical errors.

2. Verify that the debtor actually owes money. Pick up a telephone and call the debtor that you are pursuing. In this case, the "debtor" made a $550,000 check payable to me, without even knowing who I am. I know that the holidays bring about good cheer, but even that has its limits.

3. Stay alert to little things that just don't make sense. For instance, in this case, the client (whom I had never met), purportedly had a its debtor make a check out to me for $500,000 and told me to take my fee of 1/3 from it? Why? I have not even written a demand letter. I believe in the kindness of strangers but, again, this too, has its limits.

4. The scariest thought of this process, besides potentially getting stuck for money that you paid out to con artists, is that you do not have law enforcement agencies to help you. You are on your own. Use your wits, your intelligence and ask as many questions as you need to satisfy yourself that everyone is who they purport to be.

a. We, of the Xio Shung (or some other Chinese sounding name) corporation have decided that we need your legal services to represent us in North America..... or

b. After a careful review of your credentials, we have decided to retain your legal services..... or
c. Please respond immediately if you are not in a position to help us. We have an immediate need for legal representation....

Anyways, these are all cons. Do you know how I know? I will tell you:

First, the email is not addressed to me personally. Its addressed to "Dear Attorney." If the prospective client really took the time to review my credentials, you would think that they would at least know my name.

Second, the email is sent from a source that protects the anonymity of the sender such as Yahoo, AOL or gmail. You would think that a big corporation would have its own email url, right?

Third, they rarely provide a website to check out the legitimacy of the company. Today, if you do not have a website, you might as well be Fred Flintsone.

I just read an article where several law firms got sucked into these scams. I always wondered how they worked until now. Once a law firm agrees to work for these crooks, the crooks will send a retainer agreement to the law firm and a few debtor claims. The law firm sends out the demand letters to the debtors and voila, the law firm will get what appears to be a certified check from one of the debtors. The check is actually bogus, but it looks official enough for the attorney to deposit. When funds are made available, usually on the next banking day, the client then says that it has an immediate need for its portion of these proceeds and asks the attorney to wire transfer them. After the attorney does so, he learns that the checks are bogus and he gets stuck holding the bag.

Moral of the Story - Doing business over the internet can be tricky and scary. There are rewards to be had for the wise attorney and pitfalls for that very same attorney as well. As attorneys, we are a pretty smart lot. However, there are always thieves, crooks and other scan artists that can out think us. To protect ourselves, we need to pause before we accept new engagements. We certainly need to set up procedures and protocols before transferring money or property to anyone with whose identity we have not verified. Be careful.

Under the Internal Revenue Code of 1986, (and don't go to sleep on me now), any debt that is forgiven is now taxable income to the debtor. In fact, it is called "Cancellation of Debt" income, or COD. COD arises when a consumer becomes obligated to pay back less than the principal amount of the loan. For example, if we defend our client in a $10,000 lawsuit and settle the case for $3,000, our client will have to report that $7,000 difference as taxable income. This means that our defense clients will sing our praises right up until April 15. COD is taxed as ordinary income. There are some exclusions to COD income.

One exclusion to COD income involves the forgiveness of debt in restructuring the mortgage on your home. Under the Mortgage Forgiveness Debt Relief Act of 2007, you may exclude up to $2,000,000 of debt that is forgiven in connection with the restructuring of your mortgage debt. As with most tax issues, there are certain conditions, exclusions, and must be present to win clauses which is why I am including a link to that act. Please note that this act applies to debt restructuring that takes places between January 1, 2006 and before January 1, 2013. This window does appear to be closing.

A second major exclusion from COD income involves bankruptcy. To the extent that you get a discharge in bankruptcy, COD income may be excluded. This is somewhat of an oversimplification of the rule. If you need specific advise on how this exclusion works, you should talk with your accountant tor attorney. Just know that this rule is out there.

There are some other exclusions to COD income, but they are beyond the scope of this blog post as they generally do not apply to consumers.

Moral of the Story - Consumers - when your debt is forgiven, there is a taxable event. When your attorney negotiates a settlement on your behalf, be sure to account for the taxes that you will be responsible for on the forgiveness of this debt. Also, note that if you are considering a restructuring of your mortgage debt, that the Mortgage Forgiveness Debt Relief Act of 2007, you may exclude up to $2,000,000 of COD income. However, there is a time limit currently in place on this act. Hence, if you are contemplating a restructuring of your home mortgage, do not delay!

In Michigan, I would not count on anyone getting such a windfall. While I have not seen the lawsuit, I can tell you that Michigan does not recognize torts for wrongful foreclosure. While there are many such lawsuits filed in the federal courts to stop a state court from foreclosing on property, these federal cases are almost routinely dismissed.

The bank will most likely appeal this ruling. The appellate court in New York will most likely reverse the state court ruling because Judge Spinner's cancellation of OneWest's debt of $525,000 of debt is no less shocking to the conscience than OneWests' refusals to renegotiate its debt with Mr. and Mrs. Horoski. While its a nice see the court stand up for the little guy once in a while, the fact remains that we will in the real world. In the real world, banks have a right to foreclose when the homeowner does not make his payments.