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.

Another repository of information about you is your health information at MIB Group. Its a consortium of 470 U.S. and Canadian companies that sell health, life and other insurance. They keep records related to insurance examination that you have had and prescription drugs that you have used in the past five years. This report is also subjected to the Fair Credit Reporting Act, so you can obtain a free copy of your report, once a year.

Your checking account is now monitored by consumer credit reporting agencies such as Telecheck and Chex Systems. Recently, my in laws purchased a condo in Florida and went to the local bank to open a checking account. They were astounded to learn that the bank pulled their consumer credit report with Trans Union as a condition to opening an account for them. I have come to learn that this is no isolated incident. I noticed that my bank is now pulling consumer credit reports on all new customers. Anyways, both Telecheck and Chex Systems reports are governed by the FCRA and you should pull your reports with those companies at least once a year.

Purchase Returns....yes stuff you buy and return is now being tracked by The Retail Equation. Some stores, before accepting a return, are running their customers' drivers licenses through this database. I don't believe that a store can deny someone the right to return something because that particular customer has a habit of purchasing and returning. You see, when you purchase something at a store, you are entering into a contract. If that contract allows you to return something within a specified period of time, and you comply, the store will just have to grin and accept the return. You can find out what your return profile looks like at www.theretailequation.com/consumers.

Your rental history is kept at First Advantage SafeRent. Its a database of 34 million records and is used to help landlords decide whether to lease an apartment or not. This is covered by the FCRA and you have a right to see whats in that file.

Moral of the Story - There is an incredible amount of information about you out there. Most of these databases did not exist ten years ago. Today, they not only exist, but as a consumer, you have a duty to yourself and your family, to know what information about you is floating around. You see, just because its all computerized does not mean that it is necessarily accurate. Congress, through the Fair Credit Reporting Act, has opened the door and given you a right to protect yourself. As a good consumer, its your job to walk through that passageway.

Read this and make a copy for your files in case you need to refer to it someday. Maybe we should all take some of his advice! A corporate Attorney sent the following out to the employees in his company.

1. Do not sign the back of your credit cards. Instead, put "PHOTO ID REQUIRED" or "SEE ID."

2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the "For" line. Instead, just put the last four numbers. Your credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

3. Put your work phone number on your checks instead of your home phone. If you have a P.O. Box use that instead of your home address. If you do not have a P.O. Box, use your work address. Never have your social security number printed on your checks. You can add it if it is necessary.

4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to Call and cancel. Keep the photocopy in a safe place.

Also carry a photocopy of your passport when you travel either here or abroad. We've all heard horror stories about fraud that's committed on us in stealing a name, address, social security number, credit cards.

The attorney that originally wrote this had his wallet stolen. Within a week, the thieve(s) ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.

But here's some critical information to limit the damage in case this happens to you or someone you know:

5. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card Numbers handy so you know whom to call. Keep those where you can find them.

6. File a police report immediately in the jurisdiction where your credit cards, etc., were stolen. This proves to credit providers you were diligent, and this is a first step toward an Investigation (if there ever is one).


But here's what is perhaps most important of all:

7. Call any one of the national credit reporting organizations, Experian, Trans Union, or Equifax immediately to place a fraud alert on your name. By placing a temporary fraud alert on one of your credit reports, you have effectively notified all three bureaus as the one that you have notified is required to notify the others as well. You should also call the Social Security Fraud Department. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the internet in my name. The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit.

By the time the attorney who originally wrote this was advised to do this, (almost two weeks after the theft of his wallet), the damage had been done. There are records of all the credit checks initiated by the thieves' purchases, none of which he knew about before placing the alert. Since then, no additional damage has been done. It seems to have stopped them dead in their tracks.

Now, here are the numbers you always need to contact about your wallet, etc., has been stolen:

1.) Equifax: 800-525-6285

2.) Experian 888-397-3742

3.) Trans Union : 800-6807289

4.) Social Security Administration (fraud line): 800-269-0271

We pass along jokes on the Internet; we pass along just about everything.

If you are willing to pass this information along, it could really help someone that you care about.

Aubrey H. Tobin
Attorney at Law, P.C.
2140 Walnut Lake Road
West Bloomfield, MI 48323
Telephone: 248.932.3070
Telecopier: 248.855.0430

My cousin Aubrey is older than I. As we were kids, he always looked out for me. He still does which is why I love him. Please heed my cousin's advice as it is sound and keep these numbers handy.

Your name;
Your address; and
Your social security number.

If these three items match the data in the lender's data base, then the credit reporting agency has considered its job done. Don't believe that this actually happens? Check out this whiny guy's, blog post. He complains that Experian would not believe him that a judgment against the defendant with the same name as his, was not his judgment. What he does NOT realize is:

a. That judgment sitting on his credit report is sinking his score faster that rock in water;
b. The only way he is going to get that judgment removed from his credit report is with a lawsuit;
c. a lawsuit against the credit reporting agency will cost him nothing to pursue because under the FCRA, the defendant has to pay his attorneys' fees;
d. He only has two years from the date that he discovered the judgment on his credit report to file that lawsuit.

MORAL OF THE STORY TO CONSUMERS:

a. When you discover something on your credit report that does not belong on it, posit your dispute immediately.
b. If (o.k., when) the credit reporting agency confirms the trade line as belonging on your report, go hire a credit and collection attorney, immediately. You only have two years to file that lawsuit.
c. An experienced credit and collection attorney will charge you nothing to file and pursue that lawsuit for you because under the Fair Credit Reporting Act, the defendants have to pay your costs and attorneys' fees.

Now, you are far smarter and more educated than whiny man. Go forth and protect your credit score.

This is not an anomalous issue. Some of my colleagues have sued car dealers over this same issue. So how do you protect yourself?

When trading in a vehicle for a new one, tell the dealer that you will turn the title to the vehicle over to the bank and not the dealer. When the dealer pays the bank off, the dealer can then take title to vehicle. If the bank is out of state, then use a local bank to act as an escrow agent. The dealer may balk at this and accuse you of not trusting them. That's o.k. If the dealer is solvent and truly intends to pay off the loan on the trade in vehicle, it will understand and should agree to this escrow arrangement. You can leave the vehicle with the dealer and if anything happens to it, your insurance company should stand behind you. For example, if the dealer moves, transfers or hides the vehicle while going out of business, that vehicle is now stolen as you still have the title in your name.

MORAL OF THE STORY - In these horrible economic times, you can no longer take it for granted that the dealer that had built up all sorts of good will in your community is still a viable entity. Do NOT turn over the titles to vehicles to a dealer without protecting yourself

Moral of the story - Debt collectors - Spent some money and get your demand letters reviewed by an attorney. The American Collectors Association and the Michigan Collectors Association are two very good places to start. By not having your letters reviewed by an attorney, you are saving a few dollars and buying a whole lot of risk. Since this is current litigation and I dont think is ever a good idea to talk about current cases, I will leave it alone at that. Word to the wise, my readers!

But its interesting to note that this agency did work nationwide. Their tactics must have produced results, right?

It’s never an easy situation when you’re in debt; the thought that you cannot pay back money you owe is as frightening as the fact that the debt collectors are going to be knocking down your door sooner than you think. But there are ways to deal with the collection agents and agencies, without losing your cool or getting intimidated by them.

• Know your rights. If you know your rights, you’re less likely to give in to demands from collectors that may be unscrupulous. They’re not allowed to harass you or use threats to collect money from you. They must follow the rules according to the Fair Debt Collection Practices Act (FDCPA) and not call you at odd hours of the day or night.

• Negotiate with them. Every debt collector worth their salt knows that if you refuse to pay, they cannot use force to make you do so. So if you explain your situation to them and try to reach an agreement where you can pay a lump sum down or a minimum amount every month to keep your creditor satisfied and show that you do intend to repay the debt in good faith, you can make your situation a whole lot easier to bear.

• Don’t be bullied down by threats. Some collectors may try to intimidate you by threatening to collect your debt directly from your pay check. But unless they have a valid court order to do so, they cannot do such a thing. So don’t allow yourself to be browbeaten into paying more than you can afford and neglect your food and rent in the process.

• Don’t use threats of your own. It’s best to deal with debt collectors in a conciliatory way and avoid antagonizing them for your own peace of mind. While you must show them that you are aware of your rights. Don’t throw facts in their face. Instead, try talking to them about your situation and asking them for a grace period in which to repay your debt.

It’s not easy when you know the collector is due to come calling, but with a little patience and planning, you should be able to deal with this crisis and get back on your feet soon enough.