Saturday, August 21, 2010

Government Mortgage Program (HAMP) Not Preventing Many Foreclosures



Just as the housing market recovery has stalled, so has the Obama administration's main program to ease home foreclosures.

Only 36,695 homeowners received permanently lowered mortgage payments in July through the much-criticized Home Affordable Modification Program, the smallest increase since December, administration officials said Friday.

And the number of people dropping out of the program continued to soar. Overall, nearly half the homeowners who entered the program since it launched in March of last year have dropped out.

Many had hoped the $75-billion program would be a silver bullet to the foreclosure problem, but it's turned out to be a dud, said independent banking analyst Bert Ely. That's not surprising, he said, given the depth of the housing market crash and recession, combined with a slow recovery.

"Even with a substantial reduction in mortgage payment and even some reduction in principal, you still have people who are over their head financially because of their reduced financial circumstances," Ely said. "Isn't it time to just rethink this whole business of modification … and let the market clear through foreclosures and short sales?"

The Los Angeles-Orange County area continued to have the most active trial and permanent modifications under the program, with 44,617 total modifications in July, or 6.6% of the national total. But that was down from 48,846 total modifications in June.

The Inland Empire was third nationwide, with 35,169 total modifications in July, or 5.2% of the total.

So far, 434,716 homeowners nationwide have received permanent modifications since the program began last year. The pace had picked up significantly starting in December after administration officials began pressuring mortgage servicers to convert more three-month trials under the program into permanent modifications.

The number of permanent modifications nearly tripled from January to May. Even in June, the administration reported that more than 50,000 new permanently modified mortgages were added.

July's slowdown in the program's growth comes amid a struggling real estate market.

During the second quarter of the year, there were a record 269,952 home foreclosures, up 38% from the same period a year earlier, according to Irvine research firm RealtyTrac. Last month, Southern California home sales plunged 21.4% compared with a year earlier, according to research firm MDA DataQuick of San Diego.

"While there has been some stabilization in the housing market, it remains clear that we have more work ahead," said Raphael Bostic, an assistant secretary at the Department of Housing and Urban Development.

The Obama administration program provides cash incentives to servicers to modify mortgages. Homeowners who qualify first get a three-month trial modification with lower payments. If they make those payments, the modification can be made permanent. Only at that point does the servicer get the incentive payment.

The administration's stated goal was to modify 3 million to 4 million mortgages through 2012.

The pace of new, temporary mortgage modifications under the program slowed in July, increasing just 1.3% to 1.3 million. Overall, about 47% of trial modifications started since the program began have been canceled. In addition, 12,912 permanent modifications have been canceled, mostly because the homeowner missed at least three straight payments.

Increasing numbers of cancellations were the latest problem for the administration's modification program, which has been plagued by complaints from homeowners of bureaucratic runarounds by servicers, including lost paperwork and unreturned phone calls.

Herbert M. Allison Jr., the Treasury Department's assistant secretary for financial stability, said the administration expected cancellations to continue as mortgage servicers work through earlier modifications that were made without documentation. Those stated-income modifications were needed last year because so many people were in need of quick foreclosure assistance, he said.

Many of the homeowners who got those early modifications under the program were removed because it turned out they "did not meet the qualifications for various reasons, such as income levels or the fact that they were not in the home itself," Allison said.

But many of those who were canceled out of the program have been helped by modifications made outside of the Obama administration program.

For the eight largest mortgage servicers, including Bank of America, CitiMortgage and Wells Fargo Bank, 45% of homeowners whose trial modifications were cancelled received an alternative modification. Wells Fargo reported Friday that 87% of the 520,399 active modifications it had done from Jan. 1 to July 31 were through its own programs.

Administration officials said the housing market had stabilized significantly since Obama took office in January 2009, and stressed that homeowners with permanent modifications had a median payment reduction of 36%, or more than $500 a month.

But Bostic said administration officials are not "in happy land" and that the market was not yet "out of the woods."

Ely said one flaw with the administration's modification program is that it does not adequately take into account all the other debts faced by homeowners.

"There's been this hype that you could wave a magic wand, change a few things [with the mortgage payment] and everything would be hunky-dory," Ely said. "It's not playing out this way."

Wednesday, June 9, 2010

In jail for being in debt

You committed no crime, but an officer is knocking on your door. More Minnesotans are surprised to find themselves being locked up over debts.

By CHRIS SERRES and GLENN HOWATT , Star Tribune staff writers

June 9, 2010

As a sheriff's deputy dumped the contents of Joy Uhlmeyer's purse into a sealed bag, she begged to know why she had just been arrested while driving home to Richfield after an Easter visit with her elderly mother.

No one had an answer. Uhlmeyer spent a sleepless night in a frigid Anoka County holding cell, her hands tucked under her armpits for warmth. Then, handcuffed in a squad car, she was taken to downtown Minneapolis for booking. Finally, after 16 hours in limbo, jail officials fingerprinted Uhlmeyer and explained her offense -- missing a court hearing over an unpaid debt. "They have no right to do this to me," said the 57-year-old patient care advocate, her voice as soft as a whisper. "Not for a stupid credit card."

It's not a crime to owe money, and debtors' prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect.

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt.

"The law enforcement system has unwittingly become a tool of the debt collectors," said Michael Kinkley, an attorney in Spokane, Wash., who has represented arrested debtors. "The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it."

How often are debtors arrested across the country? No one can say. No national statistics are kept, and the practice is largely unnoticed outside legal circles. "My suspicion is the debt collection industry does not want the world to know these arrests are happening, because the practice would be widely condemned," said Robert Hobbs, deputy director of the National Consumer Law Center in Boston.

Debt collectors defend the practice, saying phone calls, letters and legal actions aren't always enough to get people to pay.

"Admittedly, it's a harsh sanction," said Steven Rosso, a partner in the Como Law Firm of St. Paul, which does collections work. "But sometimes, it's the only sanction we have."

Taxpayers foot the bill for arresting and jailing debtors. In many cases, Minnesota judges set bail at the amount owed.

In Minnesota, judges have issued arrest warrants for people who owe as little as $85 -- less than half the cost of housing an inmate overnight. Debtors targeted for arrest owed a median of $3,512 in 2009, up from $2,201 five years ago.

Those jailed for debts may be the least able to pay.

"It's just one more blow for people who are already struggling," said Beverly Yang, a Land of Lincoln Legal Assistance Foundation staff attorney who has represented three Illinois debtors arrested in the past two months. "They don't like being in court. They don't have cars. And if they had money to pay these collectors, they would."

The collection machine

The laws allowing for the arrest of someone for an unpaid debt are not new.

What is new is the rise of well-funded, aggressive and centralized collection firms, in many cases run by attorneys, that buy up unpaid debt and use the courts to collect.

Three debt buyers -- Unifund CCR Partners, Portfolio Recovery Associates Inc. and Debt Equities LLC -- accounted for 15 percent of all debt-related arrest warrants issued in Minnesota since 2005, court data show. The debt buyers also file tens of thousands of other collection actions in the state, seeking court orders to make people pay.

The debts -- often five or six years old -- are purchased from companies like cellphone providers and credit card issuers, and cost a few cents on the dollar. Using automated dialing equipment and teams of lawyers, the debt-buyer firms try to collect the debt, plus interest and fees. A firm aims to collect at least twice what it paid for the debt to cover costs. Anything beyond that is profit.

Portfolio Recovery Associates of Norfolk, Va., a publicly traded debt buyer with the biggest profits and market capitalization, earned $44 million last year on $281 million in revenue -- a 16 percent net margin. Encore Capital Group, another large debt buyer based in San Diego, had a margin last year of 10 percent. By comparison, Wal-Mart's profit margin was 3.5 percent.

Todd Lansky, chief operating officer at Resurgence Financial LLC, a Northbrook, Ill.-based debt buyer, said firms like his operate within the law, which says people who ignore court orders can be arrested for contempt. By the time a warrant is issued, a debtor may have been contacted up to 12 times, he said.

"This is a last-ditch effort to say, 'Look, just show up in court,'" he said.

Go to court -- or jail

At 9:30 a.m. on a recent weekday morning, about a dozen people stood in line at the Hennepin County Government Center in Minneapolis.

Nearly all of them had received court judgments for not paying a delinquent debt. One by one, they stepped forward to fill out a two-page financial disclosure form that gives creditors the information they need to garnish money from their paychecks or bank accounts.

This process happens several times a week in Hennepin County. Those who fail to appear can be held in contempt and an arrest warrant is issued if a collector seeks one. Arrested debtors aren't officially charged with a crime, but their cases are heard in the same courtroom as drug users.

Greg Williams, who is unemployed and living on state benefits, said he made the trip downtown on the advice of his girlfriend who knew someone who had been arrested for missing such a hearing.

"I was surprised that the police would waste time on my petty debts," said Williams, 45, of Minneapolis, who had a $5,773 judgment from a credit card debt. "Don't they have real criminals to catch?"

Few debtors realize they can land in jail simply for ignoring debt-collection legal matters. Debtors also may not recognize the names of companies seeking to collect old debts. Some people are contacted by three or four firms as delinquent debts are bought and sold multiple times after the original creditor writes off the account.

"They may think it's a mistake. They may think it's a scam. They may not realize how important it is to respond," said Mary Spector, a law professor at Southern Methodist University's Dedman School of Law in Dallas.

A year ago, Legal Aid attorneys proposed a change in state law that would have required law enforcement officials to let debtors fill out financial disclosure forms when they are apprehended rather than book them into jail. No legislator introduced the measure.

Joy Uhlmeyer, who was arrested on her way home from spending Easter with her mother, said she defaulted on a $6,200 Chase credit card after a costly divorce in 2006. The firm seeking payment was Resurgence Financial, the Illinois debt buyer. Uhlmeyer said she didn't recognize the name and ignored the notices.

Uhlmeyer walked free after her nephew posted $2,500 bail. It took another $187 to retrieve her car from the city impound lot. Her 86-year-old mother later asked why she didn't call home after leaving Duluth. Not wanting to tell the truth, Uhlmeyer said her car broke down and her cell phone died.

"The really maddening part of the whole experience was the complete lack of information," she said. "I kept thinking, 'If there was a warrant out for my arrest, then why in the world wasn't I told about it?'"

Jailed for $250

One afternoon last spring, Deborah Poplawski, 38, of Minneapolis was digging in her purse for coins to feed a downtown parking meter when she saw the flashing lights of a Minneapolis police squad car behind her. Poplawski, a restaurant cook, assumed she had parked illegally. Instead, she was headed to jail over a $250 credit card debt.

Less than a month earlier, she learned by chance from an employment counselor that she had an outstanding warrant. Debt Equities, a Golden Valley debt buyer, had sued her, but she says nobody served her with court documents. Thanks to interest and fees, Poplawski was now on the hook for $1,138.

Though she knew of the warrant and unpaid debt, "I wasn't equating the warrant with going to jail, because there wasn't criminal activity associated with it," she said. "I just thought it was a civil thing."

She spent nearly 25 hours at the Hennepin County jail.

A year later, she still gets angry recounting the experience. A male inmate groped her behind in a crowded elevator, she said. Poplawski also was ordered to change into the standard jail uniform -- gray-white underwear and orange pants, shirt and socks -- in a cubicle the size of a telephone booth. She slept in a room with 12 to 16 women and a toilet with no privacy. One woman offered her drugs, she said.

The next day, Poplawski appeared before a Hennepin County district judge. He told her to fill out the form listing her assets and bank account, and released her. Several weeks later, Debt Equities used this information to seize funds from her bank account. The firm didn't return repeated calls seeking a comment.

"We hear every day about how there's no money for public services," Poplawski said. "But it seems like the collectors have found a way to get the police to do their work."

Threat depends on location

A lot depends on where a debtor lives or is arrested, as Jamie Rodriguez, 41, a bartender from Brooklyn Park, discovered two years ago.

Deputies showed up at his house one evening while he was playing with his 5-year-old daughter, Nicole. They live in Hennepin County, where the Sheriff's Office has enough staff to seek out people with warrants for civil violations.

If Rodriquez lived in neighboring Wright County, he could have simply handed the officers a check or cash for the amount owed. If he lived in Dakota County, it's likely no deputy would have shown up because the Sheriff's Office there says it lacks the staff to pursue civil debt cases.

Knowing that his daughter and wife were watching from the window, Rodriguez politely asked the deputies to drive him around the block, out of sight of his family, before they handcuffed him. The deputies agreed.

"No little girl should have to see her daddy arrested," said Rodriguez, who spent a night in jail.

"If you talk to 15 different counties, you'll find 15 different approaches to handling civil warrants," said Sgt. Robert Shingledecker of the Dakota County Sheriff's Office. "Everything is based on manpower."

Local police also can enforce debt-related warrants, but small towns and some suburbs often don't have enough officers.

The Star Tribune's comparison of warrant and booking data suggests that at least 1 in 6 Minnesota debtors at risk for arrest actually lands in jail, typically for eight hours. The exact number of such arrests isn't known because the government doesn't consistently track what happens to debtor warrants.

"There are no standards here," said Gail Hillebrand, a senior attorney with the Consumers Union in San Francisco. "A borrower who lives on one side of the river can be arrested while another one goes free. It breeds disrespect for the law."

Haekyung Nielsen, 27, of Bloomington, said police showed up at her house on a civil warrant two weeks after she gave birth through Caesarean section. A debt buyer had sent her court papers for an old credit-card debt while she was in the hospital; Nielsen said she did not have time to respond.

Her baby boy, Tyler, lay in the crib as she begged the officer not to take her away.

"Thank God, the police had mercy and left me and my baby alone," said Nielsen, who later paid the debt. "But to send someone to arrest me two weeks after a massive surgery that takes most women eight weeks to recover from was just unbelievable."

The second surprise

Many debtors, like Robert Vee, 36, of Brooklyn Park, get a second surprise after being arrested -- their bail is exactly the amount of money owed.

Hennepin County automatically sets bail at the judgment amount or $2,500, whichever is less. This policy was adopted four years ago in response to the high volume of debtor default cases, say court officials.

Some judges say the practice distorts the purpose of bail, which is to make sure people show up in court.

"It's certainly an efficient way to collect debts, but it's also highly distasteful," said Hennepin County District Judge Jack Nordby. "The amount of bail should have nothing to do with the amount of the debt."

Judge Robert Blaeser, chief of the county court's civil division, said linking bail to debt streamlines the process because judges needn't spend time setting bail.

"It's arbitrary," he conceded. "The bigger question is: Should you be allowed to get an order from a court for someone to be arrested because they owe money? You've got to remember there are people who have the money but just won't pay a single penny."

If friends or family post a debtor's bail, they can expect to kiss the money goodbye, because it often ends up with creditors, who routinely ask judges for the bail payment.

Vee, a highway construction worker, was arrested one afternoon in February while driving his teenage daughter from school to their home in Brooklyn Park. As he was being cuffed, Vee said his daughter, who has severe asthma, started hyperventilating from the stress.

"All I kept thinking about was whether she was all right and if she was using her [asthma] inhaler," he said.

From the Hennepin County jail, he made a collect call to his landlord, who promised to bring the bail. It was $1,875.06, the exact amount of a credit card debt.

Later, Vee was reunited with his distraught daughter at home. "We hugged for a long time, and she was bawling her eyes out," he said.

He still has unpaid medical and credit card bills and owes about $40,000 on an old second mortgage. The sight of a squad car in his rearview mirror is all it takes to set off a fresh wave of anxiety.

"The question always crosses my mind: 'Are the cops going to arrest me again?'" he said. "So long as I've got unpaid bills, the threat is there."

cserres@startribune.com • 612-673-4308 ghowatt@startribune.com • 612-673-7192

Monday, June 7, 2010

Bank of America to pay $108 million to settle Countrywide case

The agreement with the Federal Trade Commission will create a fund to provide refunds to homeowners who were charged improper fees.

Homeowners who had mortgages serviced by defunct subprime lender Countrywide Financial Corp. are eligible for refunds of some improper fees under a $108-million settlement announced Monday by the Federal Trade Commission.

The agency began investigating the loan-servicing business of the company, since acquired by Bank of America, in 2008 amid complaints about fees charged to homeowners who had fallen behind on their mortgages and were in default.

Mortgage servicers, who collect monthly payments on loans, are allowed to charge homeowners for items such as property inspections, lawn mowing and other services designed to protect the lender's financial interest in the property, the FTC said.

But as the housing market collapsed, Countrywide created subsidiaries to do the work, then marked up the price of those services by 100% or more, charging homeowners the fees to increase profits from default-related services in bad economic times, the FTC said.

"Life is hard enough for homeowners who are having trouble paying their mortgage. To have a major loan servicer like Countrywide piling on illegal and excessive fees is indefensible," FTC Chairman Jon Leibowitz said.

Countrywide also failed to tell borrowers when it added new charges to their mortgages and made "false or unsupported claims" to borrowers about the how much they owed on their loans, the agency said. The marked-up fees were collected as part of repayment plans, foreclosures or bankruptcies.

The settlement creates a $108-million fund to provide refunds to homeowners who were overcharged before July 2008, when the company was bought by Bank of America.

Bank of America agreed to settle the charges "to avoid the expense and distraction associated with litigating the case," it said in a statement. The settlement involved no admission of wrongdoing, BofA said. The settlement requires the company to stop the practices.

Once the court approves the settlement, the FTC said it would notify eligible homeowners in a process that could take several months. The agency has a website with more information, http://www.ftc.gov/countrywide.

Thursday, June 3, 2010

HAMP Mortgage Modification Litigation

NCLC, with its co-counsel, has brought four class action suits on behalf of Massachusetts residents to challenge the failure of Wells Fargo Bank , Bank of America , J.P. Morgan Chase Bank and IndyMac Mortgage Servicers/OneWest Bank to honor their agreements with borrowers to modify mortgages and prevent foreclosures under the United States Treasury’s Home Affordable Modification Program ("HAMP”). The complaints are filed with the United States District Court for the District of Massachusetts and assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing and promissory estoppel under Massachusetts common law arising from the financial institution's alleged failure to keep its promises to modify eligible loans to prevent foreclosures against homeowners who have lived up to their end of the bargain as required by HAMP.

Our firm is currently reviewing cases involving the HAMP program similar to what the NCLC has filed. We believe that the requirements under HAMP for a loan modification are very favorable toward most borrowers, and the fact that the majority of the home owners we speak with have been denied the HAMP modification tells us that the Mortgage companies and servicing agencies are failing to follow the guidelines under HAMP to help consumers modify their loan. Whether this is intentional or just incompetence, we are not sure yet at this stage. If you have a situation where you have been denied a HAMP modification and are in Alabama, please give us a call as we may be able to help.

Wednesday, June 2, 2010

Man Wins $1.5M Over Profane Debt Collection Calls
Collections Agents Allegedly Used N-Word, Sexual Language in Voicemails

By ALICE GOMSTYN and DALIA FAHMY

A jury has awarded a Texas man more than $1.5 million in a lawsuit over profane voicemail messages allegedly left by a collections agency.
Allen Jones receives profanity-laced collection agency calls.

Lawyers for Allen Jones, of Lewisville, Texas, say he was subjected to harassing phone calls from Advanced Call Center Technologies. Employees, lawyers said, used the n-word and the f-word and made racially-charged remarks about Jones, who is black.

In one voicemail message, a collector suggested that Jones "go pick some m*****f****** cotton fields," according to recordings provided by Jones' lawyers.

"It got out of control," Jones, 26, said. "It was horrific."

Dean Siotos, a lawyer for Advanced Call Center Technologies, called the language in the voicemails "indefensible" and said that the calls allegedly placed by ACT employees "must have been in some sort of personal attack unrelated to the business."

"It's not in any way, shape or form consistent with the way ACT's collection deparment attempted to collect debts," he said.

Two ACT employees named in Jones' lawsuit no longer work at the company, Siotos said. He said the company, which has headquarters in Pennsylvania, will wait until an official judgment is entered on the jury verdict before deciding whether to appeal. The jury issued its verdict last Friday.

Jones said that the collection calls took place in August, 2007 and stemmed from an $81 credit card debt. Jones said the he had actually paid off the debt at the time he started receiving calls from ACT, but the collections agents wouldn't stop calling even after he told them the debt was resolved.

The calls came as early as 6:30 a.m. and as late as 11 p.m., said lawyer Dean Malone, who along with Mark Frenkel, represented Jones in the case. In addition to profanity, one of the messages included a sexual message about Jones' wife, Malone said.

"It was just significant, over-the-top harassment," he said. "I've handled hundreds of these cases over the years. This is by far the worst I've ever seen."

After a two-week trial, a jury found ACT and its former employees had violated Texas debt collection rules and awarded Jones $50,000 for mental anguish, $143,000 in attorney's fees and $1.5 million in additional damages.

http://abcnews.go.com/Business/man-wins-15m-vulgar-debt-collection-calls/story?id=10795674

Friday, May 28, 2010

What Happens When a Mortgage Company Wrongfully Forecloses?

Mortgage companies often make mistakes. It is not unusual for mortgage companies to lose payments or fail to properly apply payments, or for some other reason falsely accuse the borrower of defaulting on the mortgage. Mortgage companies also sometimes fail to give the required notice to the borrower prior to the foreclosure. Also, because of the confusion that often exists regarding the ownership of a mortgage, a foreclosure can be performed by the wrong company.

Conducting a foreclosure sale without complying the legal requirements is considered under Alabama law to be a “wrongful foreclosure.” Alabama law allows a borrower to bring suit for wrongful foreclosure. The consumer may recover damages and may be able to set aside the foreclosure sale. Conducting a wrongful foreclosure sale may also constituted a violation of federal law.

In Alabama the foreclosure process begins when the foreclosure notice is first published in the newspaper. Beginning this procedure when there is no right to foreclose can also be “wrongful foreclosure.” This means that consumers may have a claim for wrongful foreclosure, or other claims, even when the foreclosure sale has not occurred or was ultimately canceled.

Challenging a Foreclosure

The law also allows a consumer to go into court, before a foreclosure sale, and ask the court to "enjoin" (i.e. stop) the foreclosure sale. The borrower will have to present evidence that the foreclosure is illegal. Although success of this challenge will depend on the particulars of the case and the judge's discretion, where successful, this can be a valuable alternative to filing bankruptcy. The key is to act quickly so that your lawyer will have a time to pursue option. This point is so important, it bears repeating - see below.

Act Quickly! If you believe that foreclosure proceedings have been brought against you wrongfully, you need to immediately seek legal advice with a consumer rights attorney. Do not wait. If you think that you are victim of a wrongful foreclosure, even if the sale has not taken place yet, act now. The sooner you get legal help, the more options you will have.
YOUR RIGHTS AGAINST DEBT COLLECTORS

We are experiencing in Alabama an explosion of collection suits. While many of these suits are legitimate, a large portion are frivolous - filed with no basis and with no intent to present evidence proving the debt. Consumers report being sued by companies they have never heard of, or on a debt that they have never heard of, much less owe, or both. Others get sued on accounts they own, but in amounts that make no sense. Some of the alleged debt, if it is owed it at all, is so old that it not legally enforceable - well beyond the applicable statute of limitations.

In order to win its collection case in court, assuming the debtor shows up, the collector would have to prove the debt. This would mean presenting admissible evidence that clearly identified the debt, the debtor, and established that the debt collector is the owner of the debt. Moreover, the evidence would, in most cases, have to be authenticated by a human being, through live testimony, with personal knowledge of the records or the debt. Many debt collectors know that, if challenged, they would never be able to meet the evidentiary standards for proving their claim.

In representing many consumers targeted by such suits, one sad fact becomes crystal clear: Many collectors know that they can not prove their case and they do not intend to try to prove their case. So, why do all these cases get filed? The answer is the default judgment. A default judgment is entered when the defendant (the debtor) fails to answer the complaint or show up for trial. Once a default judgment is entered, it is as effective as any other judgment. The default judgment entitles the plaintiff (the debt collector) to collect on the judgment just as though it had gone to trial and proved its case. Debt collectors know that many of the consumers they sue will simply not show up to defend the suit. When the debtor does show up for trial, many collectors will concede or dismiss the case. They know they will recoup any loss through default judgments obtained against debtors that do not show up.

The "debt buyers" are the worst offenders. These are nationwide companies, many of which are very large. They purchase "bad debt" either from the original creditor or from another debt collector. By the very nature of this "bad debt" there is usually some fundamental problem in the collectability of the debt. There is usually little or no documentation which would provide admissible evidence of who is responsible for the debt and the amount of the debt. Not surprisingly, this results in suits against the wrong consumer and suits for amounts which cannot be justified or proven. This practice also results in suits on debt that is too old to be collected.

So You’ve Been Sued by a Debt Collector - What Now?
If you have been served with a collection suit, there are two main points to bear in mind:
  1. DON’T PANIC! THE COLLECTOR HAS THE BURDEN OF PROOF:

    The collection suit filed against you is like any other lawsuit: the plaintiff (the debt collector) has the burden of proving that you owe the debt. Despite what collectors may be telling you over the phone, you have no obligation to prove that you do not owe the debt. Our legal system does not work that way. It is up to the debt collector to prove by admissible evidence each of the following: (a) that this is your account and you owe the debt, (b) that the amount claimed is correct, and (c) that the entity that filed the lawsuit is the owner of the debt. If the collector fails to prove any part of its case, it is not entitled to a judgment against you. In addition, if the suit is filed beyond the applicable limitations period for filing the suit (and you raise this as a defense), the collector cannot obtain a judgment against you even if it proves that this is your debt. The statute of limitations which apply will depend on the particulars of the account. For more on this subject, click here.

    Assuming that you timely respond to the lawsuit (see below), the filing of the suit against you can ultimately be used as an opportunity for you to not only defeat this debt once and for all (including having it removed from your credit report), but to turn the tables on the collector and pursue the collector for violating your legal rights. For more on your legal rights against debt collectors, click here.
  2. YOU MUST TIMELY RESPOND TO THE COMPLAINT!

    The worst thing you can do if you are sued is to ignore it. Doing nothing will result in a default judgment being entered against you. This may result in the garnishment of your wages or bank account or other action taken by the collector, even if you never owed the debt. Read and follow the instructions on the summons you receive very carefully and comply with those instructions in answering the complaint. If you are sued in Small Claims or District Court in Alabama, you have 14 days from the day you are served with the complaint to file an answer. If you are sued in Circuit Court (will apply if the debt is over $10,000), you will have 30 days to respond.

    In Small Claims or District Court, a form answer is typically provided with the summons. If you do not owe the debt or do not recognize the name of the entity that has sued you or if you believe there is some other reason why you do not legally owe the debt, indicate on the form that you are denying that you owe. The best course is to seek legal advice before submitting this answer.
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