Tag Archives: fdcpa

Verification of Debt – Don’t Let the Right Turn You into a Sucker

Don’t be a Verification Sucker – Request for Verification is NOT a Substitute for an Answer

 

Verification of your debt is an important right, but demanding it  will NOT prevent a default judgment if you get sued.

People in debt trouble hear a lot about debt validation, and that is a good thing. Even though verification requires little from the debt collector, it’s still good to make the demand when you’re first contacted by a debt collector trying to harass you into paying. Requesting validation sends a signal to the debt collector that you will defend your rights.

If you get sued by a debt collector, however – even if that’s the first you’ve ever heard from them – you must do more. You must answer the lawsuit by filing your answer in court.

If you don’t answer, the debt collector usually gets a default judgment. That effectively ends your rights to fight the debt.

Conclusion

When a debt collector (or creditor) files suit against you, you will have to file an answer in court to avoid a default judgment. Many people think all they have to do is “dispute the debt and request verification.” The right to verification, however, applies only to collection efforts that are not part of a lawsuit. Don’t be a verification sucker – file an Answer and defend yourself.

Should I Declare Bankruptcy? Maybe not if Sued for Debt

Should you declare bankruptcy?  When debt collectors call or bills pile up, many people look or hope for a quick, easy escape. Too many people tell them bankruptcy is that easy way out. Unfortunately, for most people it is neither easy nor a way out. It can be a costly mistake.

There might be better ways.  Most people can defend themselves from debt cases  (using materials provided by this site) without having to hire an expensive lawyer.

When people are being sued for debts, they often panic and look for the quickest, easiest, or least scary way out. And they often consider bankruptcy as a possible solution. There are often much more effective ways to handle old debt, especially credit card or merchant account debt in the possession of a debt collector, than bankruptcy. You can defend yourself without hiring a lawyer, and even if that doesn’t work out – which it usually does – you could still file bankruptcy. But if you can avoid bankruptcy, you will reduce the harm the debt doesyou.

Types of Debt

There are two main types of debt: “secured,” and “unsecured.” Secured debt means that the debt has specific assets backing it. If you miss payments, you can have your house foreclosed or your car repossessed. These things “secure” the debt and can be repossessed and sold if you stop making payments.

Unsecured Debt

Unsecured debt is debt that is not secured – no specific assets guarantee the debt’s repayment. Just because a debt is “unsecured” does not mean that a debt collector can’t sue you for it. On the contrary, it means the collector must sue you personally in order to collect any money. The creditor then “enforces” the judgment against you by garnishing wages or attaching accounts. But this can be difficult for various reasons.

Rights of Creditors

Lenders on secured debts are in a much better position than unsecured lenders in general. One of those advantages comes in bankruptcy.

In the bankruptcy law, the law regards an item securing a debt as the creditor’s property (the one who lent the money). If you do not make the payment owed, the creditor can just take it back. Consider a mortgage on a house. The house “secures” the debt, and if you stop making payments the bank can take the house and sell it to pay the debt. That is “foreclosure” as you probably know. The law considers it unjust to allow someone not paying for the property to keep it from the rightful owner. So the lender typically asks the bankruptcy court to “lift the stay” so foreclosure can take place. Although you can sometimes delay the lifting, the courts usually “relieve” the lenders and allow them to foreclose on the house and kick the debtor out.

Unsecured Debt

With unsecured debt, on the other hand, the court simply adds up the debts and pays them out according to how much money the bankrupt person has. Usually very, very little. And only at the end of the bankruptcy procedure.

Bankruptcy May Not Help When It Applies

What all that means practically is that if you have a large secured debt (mortgage) that you cannot pay, bankruptcy will offer you very little protection. If you have a large unsecured debt, bankruptcy will probably protect you to an extent, but it is slow, time-consuming and expensive compared to defending yourself against the debt collector. And most people who start bankruptcy end the process without getting what they wanted.

Some examples may help make it clearer.

Consider the Smiths. The Smiths have a house and make payments of $2.500 per month. Mr. Smith loses his job and they fall behind in their payments. If the family seeks bankruptcy as their house payments add up, the lender will obtain “relief from the stay” and foreclose on the house. The Smiths are out of luck, and bankruptcy usually does not help.

Now consider the Joneses. If the Joneses have credit card debt of $25,000 and Mrs. Jones loses her job so they can’t make payments, they could seek bankruptcy help. It would probably cost them at least a thousand dollars or more to file, require them to disclose most or all of their finances over the past year or two, and fill out a large amount of paperwork. At the end of the proceeding, at least a year later, the court would “discharge” their debts.

If they make it to the discharge, the bankruptcy will help. But it will remain as a mark against their credit record for seven years.

An Alternative: Defense

The Jones could, however, simply defend themselves against the lawsuits brought by the debt collectors. For reasons I’ve made clear elsewhere, their chances of winning the suit would be excellent. If the Jones do it right, they can eliminate the debt completely. This does not always mean completely cleaning their credit reports. But it can often mean canceling the debt and removal of the recent credit report damage. And it usually will happen in less than six months from the date the debt collector brings suit. They won’t have the bankruptcy on their credit report. They can do it themselves for almost no money at all, and if by chance it doesn’t work, then they could declare bankruptcy.

Conclusion

Better results, less cost. That’s why it’s often better to defend yourself against credit card debt than to seek bankruptcy protection. It’s also true that if for any reason the Jones lost their case against the debt collectors, they could still file for bankruptcy without having lost its protection.

Excuses in Debt Defense Will Lose Your Case

Making excuses will lose your case
Making excuses will lose your case

Sincerity vs. Integrity

Making excuses in debt law cases is a good way to lose your case.

The “iron law of cause and effect” applies to everything. What this means is that, for every action, something happens as a result. No matter why it happened, if it does happen, there are consequences. There are no free lunches. Ever.

You know that. But it’s easy to forget when things get tough.

We pretend the iron law of cause and effect does not apply to us all the time. If we’re late, we apologize, and that’s usually enough to get past the other person’s anger or hurt feelings. If we apologize sincerely enough or give enough good reasons, it seems like we get away with it. But it isn’t called the “iron law” for nothing. Even if the other person excuses us, he thinks we are less dependable. And if the other person doesn’t, we think of it ourselves. Consequences.

Sincerity means not intending to do harm. Integrity means not doing it. Know the difference.

Substantive Law of Debt

If a debt collector can prove you borrowed money and didn’t pay it back, it should get a judgment against you. And if you don’t make them prove their case, they will get their judgment. Simple as that. They call that “strict liability,” which means that WHY you didn’t pay does not matter.

On the other hand, there are events that can destroy a debt. Showing payment, that it was based on fraud, or settlement to name a few, will attack the debt. But if the debt isn’t destroyed, no amount of sincerity will get you off the hook. It doesn’t matter how much you wanted to pay. It doesn’t matter how much you tried to pay. Or whether you tried at all.

It’s surprising how often people get mad at debt collectors for trying to collect debts they (the people involved) can’t afford to pay. Just because the debt collector has a ton of money doesn’t mean they won’t or shouldn’t get a judgment against you. Don’t think that way.

Instead, fight and make them prove their case if they can. Require them to prove the debt and their right to it. Luckily, they aren’t so good at that.

Excuses in Litigation

We’ve been talking about the substantive law of debt, which is almost absolute,. It’s a little murkier when you talk about procedures such as responding to motions and the like. There, excuses CAN make a difference – sometimes. If you make a mistake in doing something, this can sometimes be excused. Likewise, if you make a mistake, you should certainly try to get it excused. The sincerity of your excuse will matter then, so make it good and say it with feeling. And you might get away with it.

But even if you do get away with it, every mistake has consequences. As a pro se defendant, you work mighty hard to get the judge to take you and your words seriously. You want the judge to apply the law fairly and consistently – that’s really all you need in most debt cases to win.

Follow the Rules – Don’t Ask for Breaks

Any time you ask the judge for something special or make some kind of excuse, you will hurt your chances of the court taking you seriously and holding the debt collector to the rules. And all too often, the court will not give you the break it probably should. Thus you should always work your hardest and do your very best to understand the law and rules of your court. As much as possible, you NEVER want to ask the judge for anything she isn’t supposed to do.

And to get your best, you must give your best. Never make excuses for yourself, and never accept them from yourself. It’s impossible to be perfect, but try not to make any mistakes you don’t have to make. That isn’t a cliche or boring old saying – it’s encouragement to you to work your @ss off. The only way to avoid making mistakes is by figuring out things ahead of time and always going the extra mile. You can get away with doing less in some parts of your life, but you often cannot in litigation.

 

 Get Help

If you would like us to take a look at your case and give you a sort of road map to what you need to do and how, take a look at our Personalized Evaluation product. If a debt collector is suing you and you already know you want to defend yourself without spending a lot of money on lawyers, then get our Debt Defense System.

Protect Your Rights

Even if you are reading this article late in the game, shortly before trial, and you are not already a member, you should consider doing so. We have materials helpful to last minute defense and trial preparation even if you are facing this rule.

If it’s a little earlier in the lawsuit, or if no has filed suit yet, you have many other options. Membership can present you many benefits and help you win your case. Or you could check out some of our e-courses.

 

Gold Debt Defense System
Gold Debt Defense System

Gold Debt Defense

 

Platinum Debt Defense System

Platinum Debt Defense System

 

Diamond Debt Defense System

Diamond Debt Defense

Pro Se Debt Defense – Easier than you Might Think

Pro Se Representation is easier than you think
Pro Se Representation is easier than you think

Should You Represent Yourself in Debt Law?


Hiring a lawyer might be the “gold standard” of defense, but lawyers are expensive. If you’re being sued by a debt collector and can’t afford a lawyer, all is not lost. You CAN represent yourself. This is not complicated law, debt collectors are not innovative or particularly energetic. And the debt collection system is a “factory” approach not designed to work against people who defend themselves intelligently. You can do it.

Okay – maybe debt defense isn’t always very fun. In fact, most of the time it isn’t exactly fun, but it is easier than you expect, And winning is great. Going from worrying about having to pay from $1,000 to $50,000 to some debt collector, to having them drop the case – or to settling with you for pennies on the dollar IS fun. It changes the way you look at debt and debt law forever.

Pro se legal means representing yourself rather than hiring a lawyer to do it for you. You have the right to do that in essentially any court proceeding, whether as defendant or plaintiff.

Pro se is a Latin phrase meaning “for oneself.” You will sometimes see it called propria persona (abbreviated to “pro per”). In England and Wales, the comparable status is called “litigant in person.” Not that it matters, right?

Some Think It’s Scary

Although many people fear the thought of representing themselves in court, pro se representation is not rare. According to National Center on State Courts in 1991-92 71% of domestic relations (family law) cases had at least one unrepresented party. In 18% of the cases both parties were pro se.  It is a growing trend in debt collection law as well .

People have long had the right to self-representation in the United States. That right predates even the ratification of the Constitution. Section 35 of the Judiciary Act of 1789—enacted by the first Congress and signed by President Washington, states that, “in all the courts of the United States, the parties may plead and manage their own causes personally or by the assistance of counsel.” Most states have a similar constitutional provision.

Will the Courts Protect You from Mistakes?

The California rules of Civil Procedure explicitly prefer resolving every case on the merits. This applies even if doing it requires excusing a mistake by a pro se litigant that would otherwise result in a dismissal. The Judicial Council says that “Judges are charged with ascertaining the truth, not just playing referee.” And the Council suggests “the court should take whatever measures may be reasonable and necessary to insure a fair trial.”

Most states and the federal courts officially share this bias in favor of hearing courts on “their merits,” (based on what is actually fair). Pro se litigants cannot rely on any special treatment, however. Some courts explicitly will not extend favorable treatment to non-professional litigants. Our position has always been that you should know the rules. Knowing the rules means you can use them. And one secret of debt law is that it is the debt collectors who rely on leniency. You need to prevent that if possible.

Pro Se Litigants Often Do Very Well

Pro se litigants usually do not need extra help. According to Erica J. Hashimoto, an assistant professor at the Georgia School of Law, criminal defendants are “not necessarily ill-served” by the decision to represent themselves. In state court, pro se defendants charged with felonies probably fared much better than represented defendants.

Of the 234 pro se defendants studied by Ms. Hashimoto, “just under 50 percent of them were convicted on any charge….for represented state court defendants, by contrast, a total of 75 percent were convicted of some charge.” And just 26 percent of the pro se defendants ended up with felony convictions, whereas 63 percent of represented defendants in Ms. Hashimoto’s study did. In federal court…the acquittal rate for pro se defendants is virtually identical to the acquittal rate for represented defendants.

Of course there could well be other important variables that the Hashimoto study did not include, but it seems clear that there is not an “automatic penalty” for daring to represent yourself.

There are certain types of cases and situations where pro se representation may actually be an advantage. In debt collection cases, for example, the economic factors often outweigh legal issues. A vigorous pro se defendant can gain a significant advantage by taking energetic steps that a lawyer—always on the clock—would pragmatically be unable to take.

Courts are not always favorable to self-represented people for various reasons. But even with that bias, pro se plaintiffs have recorded some significant victories in civil courts.

Pro Se Representation in Debt Collection Cases

Defendants in debt collection cases have some significant economic advantages in conducting their cases. They also have fewer of the disadvantages that many other types of cases have. Debt collection cases tend to be document-intensive rather than witness-intensive. In the unusual case which actually goes to trial, there are not many things to prove or disprove, and the evidentiary issues are basic. Pro se defendants can argue whether the debt collector produces enough evidence. And whether that evidence is “admissible” in court for the court’s consideration. You won’t need much finesse.

This basic legal simplicity, and the fact that debt collectors drag defendants before the court against their wishes often seem to create a favorable impression on the judges.

Get Help

If you would like us to take a look at your case and give you a sort of road map to what you need to do and how, take a look at our Personalized Evaluation product. If you’re in a lawsuit and already know you want to defend yourself without spending a lot of money on lawyers, then get out Debt Defense System.

Protect Your Rights

Even if you are reading this article late in the game, shortly before trial, and you are not already a member, you should consider doing so. We have materials helpful to last minute defense and trial preparation even if you are facing this rule.

If it’s a little earlier in the lawsuit, or if the debt collector has not filed suit, you have many other options. Membership can present you many benefits and help you win your case. Or you could check out some of our e-courses.

 

Gold Debt Defense System
Gold Debt Defense System

Gold Debt Defense

 

Platinum Debt Defense System

Platinum Debt Defense System

 

Diamond Debt Defense System

Diamond Debt Defense

 

Never Make Partial Payments on Old Debts

Partial Payments Always a Bad Idea on Old Debts

Suppose you get called on a debt that, theoretically, you owed, but didn’t pay, twenty years ago. Is there anything you should do? Is there anything you should NOT do? Should you make partial payments for any reason?

What You Should Do If You Get Called on an Old Debt

What you should do is find out who, exactly, is calling you. Find out the company and the individual. Then listen to what they say. If it is convenient, record the conversation. If not, take notes. Ask questions.

What You Should NOT Do

A 20 year old debt, not paid for 20 years, is beyond all statutes of limitations in all jurisdictions of which I am aware. However, you still “owe” the debt in some theoretical way. It remains a “debt,” and that turns out to be important. Know this, though: they can’t sue you for it, and they can’t hurt your credit report if you don’t pay it. And they can’t do anything good for you if you do pay it.

In my opinion, you should never pay such a debt.

Fair Debt Collection Practices Act

Just listen to what the debt collector says.

Let’s say he threatens to sue or tells you anything contrary to what I just said above. That would violate the Fair Debt Collection Practices Act (FDCPA). It is illegal for a debt collector to threaten you with action that he either does not intend to do or could not legally do.

Suppose, however, he tells you that they can’t sue you, but that you still owe the money, and wouldn’t it feel better to pay it? Some people might say they have no money, and so the debt collector tells them, “No problem, you can just make a partial payment. Then, if you ever get any more money, you can pay some more…”

That also violates the FDCPA in my opinion because it is deceiving you and trying to take advantage of something most people don’t know. If you give someone a gift and say you’ll give them more later, that creates no obligation to pay. If you make a partial payment on a “debt,” even one that is many years past the statute of limitations and beyond causing you any harm, you revive the debt and can be sued on it again.

Debt collectors are often trained to take advantage of people’s ignorance and to suggest partial payments on debts that are beyond the statute of limitations. If they try to get you to do that without telling you that you will revive the debt by doing so, they are misleading you. And that violates the FDCPA.

Partial Payments Revive Old Debts

By making the partial payment, you will revive the debt against you in its entirety, allowing the company to harass and sue you, and possibly even to damage your credit report again. Never, ever do it. Instead, take careful notes, and then go find an FDCPA lawyer to sue them.

If they get it all right and tell you that a partial payment would revive the right to sue you, tell them to go away and never call again. If they do, get a lawyer and sue them for that.

Other things to know

Partial payments will not just revive a statute of limitations after it has passed – it will extend it if it has not passed. Thus if the debt is five years old and getting close to the statute of limitations, your part payment will start the clock ticking again all over.

If you are being harassed or sued for a debt and need more information, be sure to check out our products and materials at Your Legal Leg Up. We have everything you need to protect  your rights.

Help Evaluating Your Situation

Get Some Help Dealing with Debt Collectors
Get Some Help Dealing with Debt Collectors

Many visitors to our site are facing dramatic new situations:

  1. You may have just found out you’re being sued; or
  2. You have either received a debt collection letter or some other “threat.”

We can help. We can take a look at your situation and the material you were sent – whether it’s a letter or a lawsuit – and give you a roadmap of what to do. It isn’t legal advice, but think of it as a sort of “guided tour” of where you need to go and what you need to do. It will save you a lot of time, wasted energy, and anxiety. And you’ll come out of it with a good idea of what you’ll need to do to set things straight.

Being Sued?

If you are being sued, we can help you get oriented to the case. People ask us all the time whether they should file a motion to dismiss or Answer, and whether or not there are any potential counterclaims to the lawsuit. If those are the sorts of questions YOU have, this is a way to get a head start on figuring out the answers.

Being Harassed or Called or “Dunned”

But what if you aren’t being sued and have just received a phone call or two, or letter?  We do have a lot of information on the site to help you evaluate your situation yourself and figure out how to protect your rights, but if you’d like something a little more specific, you can now use this service, too.

Get Help

We have products and information you will need in the earlier stages of debt problems. The most important thing to remember is this: anything you do that makes it easier for them to sue and win also makes it more likely that they WILL sue you. What does that mean? It means that if you admit owing the debt, having made payments or anything like that, and if you tell them where you work or bank, you make it more likely you will be sued. You might think you are being “responsible” and appropriately cooperative, but it works differently in law and debt.

You will find materials on site that will help you navigate this stage of the problem, but if you want some more specific guidance on what to do given the things they are telling and send you, this product is for you.

If You Need Help

If you need one of these services, just click on this link and select the service you need. Note that clicking on the link will take you to our “home” site, Your Legal Leg Up. If you need a “rush” job (service in under 72 hours), be sure to go to the products page and order that as well. You will be given instructions with your receipt on what to send and how to do it – we will need images of the documents you have received as well as answers to certain questions. After you give us that information, we will have an analysis back to you within 72 hours (three days). If you need faster than that, you can order the “rush” service, although we do ask that you NOT do this unless you need it.

Verification or Validation – Using Both FDCPA and FCRA to Protect Your Rights

A smart person disputes and requires verification
A smart person disputes and requires verification

Verification under the FDCPA and FCRA – Use Both to Protect Your Rights

The information in this article and video is designed to help people being bothered or sued by debt collectors, or who are concerned about their credit reports and wish to take action to protect their rights.

Two Kinds of Verification and How to Use them to Protect Your Rights

We have spent much of our time talking about “verification” on our site and videos, and what we have meant in most of that has been the “verification” process provided by the Fair Debt Collection Practices Act (FDCPA). But there is another kind of validation you can use – validation as permitted by the Fair Credit Reporting Act.

We talk about that below and discuss how you can use both forms of validation, together or separately, to your advantage in defending yourself from the debt collectors and in repairing your credit.

The two kinds of verification are different rights. They apply in different circumstances, to possibly different “persons” under different circumstances, give different rights, and have different time requirements.

You can use them both, but they are completely separate. It is important to keep them straight.

Make sure you keep track of everything you do under either statute, and make sure that the response you get is appropriate for the statute you used for the specific right you invoke.

Rights under the FDCPA

Under the FDCPA, when a debt collector first contacts you on a debt, it is required by law to notify you of your right to dispute the debt and require “validation” or “verification.” The two words are used interchangeably, and the requirement is quite simple in general:

  • First, the debt collector must notify you of the right to dispute within 30 days (along with giving you the “mini-Miranda” warning – that anything you say may be used for collection of a debt) within five days of first contacting you.
  • And then, the debt collector must “verify” the debt if you ask within the thirty days provided.

Just to make clear, it is YOU who have 30 days to dispute after getting the notice of your rights. The debt collector does not literally even have to do anything at all and also has no time limit. It’s just that, if you dispute and request verification, it cannot make further attempts to collect on the debt until it has verified it.

Exactly what verifying it is, is not exactly clear.

It would appear that contacting the original creditor and “establishing” that the debt is yours would be enough. That’s because the purpose of the requirement is not to require a separate lawsuit, but just to protect consumers from harassment based on typos or mistaken identities. The debt collector has to take some action to connect you to the debt if you dispute it under the FDCPA.

Even this low burden often seems to be too much, and possibly that is because the second owner of the debt (if there is one) has no relationship to the original creditor and simply cannot get the debt verified.  Whatever the reason, asking for verification is often enough to make them go away. If they try to collect without having verified, that violates the FDCPA. And that in turn might allow you to stop a lawsuit brought against you.

Remember, however, that when the debt collector immediately files suit against you, this is not a “first contact” which triggers your right to notice and dispute. If you get served, you have to answer (or move to dismiss). It is not enough to request verification.

Disputing under the Fair Credit Reporting Act

There is another kind of validation, and it is completely different from the FDCPA, although you can use it to fight debt collectors, too. It is the validation provided for by the Fair Credit Reporting Act (FCRA).

This is your right to “dispute” an item on your credit report.

You do this after looking at your credit report and seeing something that is not positive. Let’s say you see a debt collector reporting that you owe a debt. Remember your right to verification under the FDCPA comes when the debt collector first contacts you to try to collect the debt. You can dispute a line item on your credit report at any time.

There are rules, and there are better and worse ways to do it. But it does not depend on the other side being a debt collector or having tried to collect the debt. It simply requires that they have put some bad information on your credit report.

When you seek verification under the FDCPA, the debt collector has to verify the debt before making further attempts to collect. When you “dispute” the debt under the FCRA, it doesn’t affect collection. Instead, you are forcing the company to “investigate” the debt and show that what it is saying to the credit reporting agencies is true.

If the company reporting you cannot validate the debt, it is just required to withdraw the offending credit reference. But it could still try to collect the debt.

If it does keep trying to collect the debt after withdrawing a bad credit reference, that might be a type of admission that it can’t prove the debt if the case goes to a lawsuit.

But it probably isn’t controlling on the case because “validation” of a credit report is not

the same thing as proving that the debt is valid.

A Helpful Strategy

Here’s a strategy that might be helpful. If you receive a bill from a junk debt buyer – a company that bought your debt from the original creditor, in other words – you should

send a request for verification under the FDCPA right away. Then you should and get your credit report and look at it.

If the debt collector is reporting your debt on your credit report, you will want to dispute the credit report and seek validation under the FCRA. Separately.

Remember these are completely different rights. Your sending two different disputes may confuse the debt collector, but remember that under the FDCPA it must provide proof as to your identity and its right to bug you, while under the FCRA it must explain why the information it put on your credit report was correct. The debt collector may not verify under the FCRA, in which case you can clear your credit report.

If it DOES try to validate, it will probably give you information that it would object to having to provide if it were suing you for the debt – so it’s a shortcut to some discovery in that situation.

You should not try to do the FCRA verification first because it takes too much time.

To do the credit dispute right you have to get your credit report and dispute it with the credit bureau before you dispute it with the debt collector under the FCRA if you want to protect all your rights. You don’t have time to work your way through the FCRA before asserting your FDCPA rights.

On the other hand, if the company does not verify under the FDCPA, that would be worth mentioning as a basis for your credit dispute.

We should add that when you get the first letter from the debt collector you may not even know whether it is reporting you on your credit report. They often do not, so you won’t know whether or not you will have anything under the FCRA. But if they are contacting you, you have the right under the FDCPA. Since it only lasts for 30 days, you need not to delay in disputing.

We always recommend sending your disputes by certified mail (and keep all the proof). You don’t have to do this legally, but these things often come down to a question of what you can prove, and having proof from the postal service is a very good investment.

If you would like a free copy of this article, click here to download: Two Kinds of verification article.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation. (Note that this link takes you to our “home” site, YourLegalLegUp.com, which has many more resources on these issues.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.

 

Jurisdiction – Why it Matters in FDCPA and Foreclosure

jurisdiction could mean difference between losing home or not
jurisdiction could mean difference between losing home or not

If someone is trying to take away your house for nonpayment of some debt, the Fair Debt Collection Practices Act (FDCPA) may – or may not – be useful to you. The law differs according to jurisdiction, and you will want to choose the one that gives you your best chance.

This article is a very basic primer on the interaction of state and federal jurisdiction when it comes to debt collection generally, and foreclosure more specifically. Wherever you live, you will want to consider both federal and state cases on applying the FDCPA to foreclosure if you want to sue a debt collector for its acts in taking, or trying to take, away your house.

Most Debtor-Creditor and Property Law is “State” Law

In theory, federal law only applies to areas of the law designated by the constitution, whereas everything else is controlled by state law. That can lead to confusing results where those interests overlap. In general, the laws creating and enforcing property rights (e.g., contract rights, debt, or property ownership rights) are state law. If you get sued for a debt, the action will almost certainly occur in a state (as opposed to federal) court. Foreclosure rights are also determined by state law.

Debt Collection Is a Special Situation

Claims under the FDCPA can be brought in either state or federal court. While property rights are creatures of state law, debt collection was considered so extensive a problem that it was a national (i.e., federal) problem. Thus Congress carved out a piece of debtor-creditor law for itself when it enacted the Fair Debt Collection Practices Act, which makes certain actions taken by debt collectors (primarily) illegal. The FDCPA is federal law, in other words, but as it happens it provides that it can be enforced in either federal or state courts.

Because of the way the federal and state law systems mesh, you could conceivably defend a collection action or foreclosure in state court by filing a counterclaim and seeking an injunction, by filing a separate action in state court under the FDCPA, or by filing a federal claim under the FDCPA and seeking an injunction in federal court. Likewise you could defend or settle a state collection action and then bring suit under the FDCPA in federal court (although remember that the FDCPA has a one-year statute of limitations). All of these variations occur quite often.

States are Independent of Each Other

The state law of the court in which the suit is brought will always determine some the procedures in the case and usually the actual “substantive” rights. Under certain circumstances other state laws might also apply (this comes up most frequently where there is a contract that specifies the state’s law that will apply). State laws and procedures can be different from state to state. If you live in Tennessee, you will be subject to the state laws of Tennessee, and these may (or may not) be very different in some important way than the laws of Pennsylvania, for example, or any other state.

If you are pro se (representing yourself), therefore, your first action must be to determine which state laws (and of which states) apply to which parts of your case at the basic debtor-creditor level. In other words, if you are being sued on a credit card debt, is the company suing you under the law of your home state? Or is it suing you under the laws of some other state? In foreclosure law, it will almost always be suing you (or foreclosing without suit) under the law of your own state.

The courts of one state are not bound in any way by the courts of any other state when they are dealing with their own laws, but they are subject to state courts of appeals and the state supreme courts (and sometimes in certain areas of the law, the U.S. Supreme Court).

State Courts are Independent of Federal Courts, too

Things get a little more complicated when it comes to state courts applying other states’ laws or federal law. In a general sense, they “should” determine what the appropriate court applying its own law would do. In reality, there is usually no appeal to those courts, and so the decisions can vary widely.

The Federal Law

The federal system is similar to the state system, except that eventually they all answer to the Supreme Court. That is, when the Supreme Court has spoken, all the federal courts are supposed to make decisions which are consistent with what the Supreme Court says. Because cases are always decided on the narrowest set of facts possible, and because there are so many laws and cases, however, the Supreme Court often will take many years before deciding a given issue. That leaves the lower courts to guess what the Supreme Court would say. One area where that is happening right now regards whether the FDCPA applies to foreclosure. Eventually the Supreme Court will decide one way or another, but until that time, the lower courts apply the law as they see fit. Sort of.

Each Federal Circuit Controls the District Courts below it

The federal (civil) judicial system is divided into three levels: district courts (where lawsuits are filed and tried); courts of appeal (“circuit courts of appeal”) and the Supreme Court. As described above, all courts answer to the Supreme Court. Below that, the federal circuit courts of appeal control all the district courts below them. Appeals are expensive, specially to the Supreme Court, and they are hard to win. Therefore it is vitally important to win, if at all possible, at the trial court level.

How the Different Jurisdictions Interact

Because the federal circuits are independent of one another, and the states are independent of one another and the federal courts, different places develop different rules arising out of the same law. A perfect example of that would be the way the 3rd, 4th and 9th federal circuits (and all the district courts below them) allow FDCPA claims against foreclosers, whereas the 7th and 11th federal circuits limit those rights. The states also vary from each other and the federal circuits.

Forum Shopping

What all those different decisions mean is that if you are being foreclosed on and think the FDCPA applies to your case, you need to “forum shop.” That is, after determining the state laws that apply to the foreclosure itself, your second task is to determine whether or not your state applies the FDCPA to foreclosure. If not, then does your federal circuit? You will need to look at the law for each and decide where to bring your claim. You can bring it in either federal or state law – you should bring it in the jurisdiction that seems most likely to apply the FDCPA to your foreclosure. Although this isn’t necessarily easy to tell, it can make or break your case, and you need to consider the question as a part of your initial strategy.

About Your Legal Leg Up

Your Legal Leg Up is a business dedicated to helping people fight debt collectors without having to hire expensive lawyers to do it. We offer you everything you need to defend your rights – with special help through our membership services to help make the process smoother, easier, and less worrisome. YourLegalLegUp.com has been in operation since 2007. Before that, Ken Gibert practiced law representing people being sued for debt among other types of consumer law.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.

Foreclosure: A Debt Collection Method in Ordinary Life

Foreclosure is a form of collection
Foreclosure is collection

Foreclosure is Debt Collection

Foreclosure is a form of debt collection in the real world. Debt Collectors threaten to repossess and auction off property that secures a loan unless that loan is paid, or else they actually repossess and sell off the property, in order to pay the debt. This video and article discuss the way the process works.

What Foreclosure Does

Foreclosure is designed to allow for possession (or repossession) of property that was used to secure a debt that was subsequently unpaid. Most people simply think of foreclosure as “getting kicked out of your house,” and in many situations that is an appropriate understanding. In reality foreclosure addresses ownership rights rather than possession, however. It involves the termination of at least one person’s rights of ownership in favor of another person, and this can, but does not always, lead to eviction.

English Law and the History of Foreclosure and Property Rights

We don’t think of it very often, but one of the great inventions of English law was the division of property into different property “interests” or rights that could co-exist in the same property. The state “owns” physical property in one way, the landowner in another, and the tenant also has certain ownership rights, for example. If the landowner is married, both spouses will have rights in the property, and it is possible to divide the rights up in many other ways, too. Another form of coexisting rights is the way the same property could be owned by you, but subject to a mortgage and also various sorts of liens.

“Foreclosable” Interests

It is with the mortgage and liens we are primarily interested here, because these can be “foreclosed.” It is worth remembering that while most people (including the courts) only think of “purchase-money mortgages” (the mortgage you take out in order to buy your house) when they analyze foreclosure, there are other ways liens can be placed on your house (by the state for taxes or judgments, to name two), and all liens can be foreclosed. Mechanically what happens is that the foreclosing party causes the property interests to be divided and paid off – and the way that is accomplished is by selling the property and splitting the money up according to the priority of interests.

There is a definite hierarchy of interests, and the higher interests must be completely satisfied before the lower interests get anything. Eventually, if every interest is satisfied and money is left over, this would go to the property “owner.” Or to put it another way, being the property owner means that you get whatever is left after all the other interests are paid off (you are entitled to the “equity”). But usually, if there is not enough to cover all the secured interests, you will owe the secured parties money personally.

Two Examples of Foreclosure

Let’s consider two examples. In the first, Owner A each own houses worth $100,000 on the open market. That’s what it sells for.

Owner A

Owner A has the following liens against the property: a purchase money mortgage of $35,000, a home equity loan of $10,000, and a mechanic’s lien of $1,000.

$100,000 Value of House

($35,000) Purchase Money Mortgage
($10,000) Home Equity Loan
($ 1,000) Mechanic’s Lien
===================

$54,000 – Equity

Owner B

Owner B has the following liens against the property (in this order – the order of liens is beyond the scope of this article): a purchase-money mortgage of $110,000 (the house is “underwater” because the loan remaining is more than the house is worth); a home-equity loan of $10,000, and a mechanic’s lien of $1,000.

$100,000 Value of House

($110,000) Purchase Money Mortgage
($ 10,000) Home Equity
($ 1,000) Mechanics lien
=============

($21,000) equity (a negative number)

If neither one can pay off the purchase money mortgage, go into default, and are foreclosed, here’s what happens.

Results of Foreclosure

A loses possession of the house, and all security interests in the property are “extinguished.” The money is enough for the mortgage, and that is subtracted and given to the bank. Because the home equity loan and mechanic’s liens was “secured” by the house, the foreclosure breaches the contract with the lender. It intervenes (legally) in the foreclosure and demands its money and gets paid before anything goes to A. Because the lien was “subject” to the other agreements, it gets paid afterward, again before A gets anything.

In B’s situation, the bank gets all the money, and the lenders are left with claims against B. Their security interests in the property are extinguished, and chances are good they’ll lose everything they had lent.

Why Debt Collectors Often Do Not Foreclose

What if, instead of not paying the bank, A and B had failed to pay the home equity loan? In that situation, the Home Equity lender could foreclose on the loan. Lower level security interests can foreclose on the loan. It would be conceivable that any other person with an interest in the property, including the mechanic, might take some action to intervene in order to protect its interests, although in B’s case, especially, this is unlikely. The bank will get all the money, and the home equity lender will get nothing even though it is the one that foreclosed.

This explains why debt collectors rarely foreclose on a house. It will cost them money but get them nothing. But that isn’t to say they couldn’t or that it would never make sense for them to do or threaten to do.

About Your Legal Leg Up

Your Legal Leg Up is a business dedicated to helping people fight debt collectors without having to hire expensive lawyers to do it. We offer you everything you need to defend your rights – with special help through our membership services to help make the process smoother, easier, and less worrisome. YourLegalLegUp.com has been in operation since 2007. Before that, Ken Gibert practiced law representing people being sued for debt among other types of consumer law.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.

Fair Credit Reporting Act: Your Rights under the FCRA

The Fair Credit Reporting Act establishes certain rules for the credit reporting agencies and outlines your rights against them if they fail. You’ve heard about having rights to a fair credit report. Here, in plain English, is a list and explanation of your most important rights under the Fair Credit Reporting Act (FCRA 0r sometimes, just CRA) in plain English.

The Importance of Credit Reports

Our country runs on credit and credit information and the credit reporting behind them. Of course there are the obvious uses of credit to purchase things, but as more and more people are finding out, credit reports are used for much more than that – they often impact employment decisions, housing decisions and rates, business equipment lease rates, and insurance availability and price, among other things. Bad credit has a high price in so many ways.

Credit Reporting Network

As important as all the interests affected by it are, the credit reporting network (the businesses which create and publish your credit information) is a vast and largely faceless bureaucracy. The federal Fair Credit Reporting Act (FCRA) was designed to create some accountability in this network and protect consumers from some of its abuses. The FCRA was designed to safeguard the accuracy, fairness and privacy of information in the files of consumers held by the reporting agencies.

Different Kinds of Credit Reporting Agencies

There are many different kinds of consumer reporting agencies – almost everybody knows about the credit bureaus, of course, and there are also specialty agencies that sell information about check writing histories, medical records and rental history records. The FCRA was directed primarily at these agencies, rather than the creditors or companies with which you normally do business.

Here is a partial list of your major rights under the FCRA.

This isn’t a complete, exact replication of your rights under the Fair Credit Reporting Act. As with most important laws, the exact rights and their limits change as courts interpret the laws. But this will give you an accurate overview – a place to start.

Access to Your Credit Report Limited

A consumer reporting agency may provide information about you only to people with a valid need – considering an application with a creditor, insurer, employer, landlord, or other business. The FCRA specifies those with a valid need for the information. And in most cases you must give your consent before the information is obtained or used.

Rights When Credit Information Used Against You

Anyone who uses a credit report or another type of consumer report to deny an application for credit, insurance, or employment – or to take other adverse actions against you – must tell you, and must give you the name, address and phone number of the agency that provided the information. You are entitled to a free copy of that report.

Right to Find out What Is in Your File.

You can find out all the information about you in the files of a consumer reporting agency. You must be offered a free disclosure if:

  • A person has taken adverse action against you because of information in your credit report;
  • You place a fraud alert in your file as a victim of identity theft;
  • Your file contains inaccurate information as a result of fraud;
  • certain other reasons.

All consumers will be entitled to one free disclosure every 12 months upon request from each nationwide credit bureau and from nationwide specialty consumer reporting agencies.

Right to Dispute and Correct Information

If you identify information in your file that is incomplete or inaccurate and report it to the consumer reporting agency, the agency must conduct a “reasonable” investigation, and it must report the information as disputed. If it is unable to verify the information after investigation, the agency must remove or correct the entry.

For practical reasons, this provision may actually provide more important rights against the businesses that report credit events (the debt collector reporting a debt as unpaid, for example) than against the reporting bureaus.

Time Limits for negative information.

In most cases, a consumer reporting agency may not report negative information that is more than seven years old, or bankruptcies that are more than 10 years old.

Next Step to Take

Sign up for your free copy of the Fair Credit Reporting Act on this page.