California Bankruptcy Attorney Blog

In this bad economy, it was something of a surprise to a 10% drop in individual bankruptcy filings in January. So our Costa Mesa consumer bankruptcy attorneys weren't surprised to see that bankruptcies resumed their climb in February. According to a March 3 USA Today article, there were 111,693 bankruptcies last month. That's up 9% from January, 14% from February of 2009 and an alarming 47% from February of 2008. The numbers come from the American Bankruptcy Institute, a nonpartisan organization of bankruptcy attorneys, judges, bankers, scholars and others.

Samuel Gerdano, the executive director of the ABI, said consumer debt from better years is putting more strain on households these days, thanks to high unemployment. Another expert suggested that bankruptcies have become more popular because of the housing crash, which limits or destroys homeowners' ability to use home equity lines of credit to pay down other debts. Interestingly, the increase was largely in filings for Chapter 7 bankruptcy, which is the shorter "liquidation" bankruptcy. In the other major type of consumer bankruptcy, Chapter 13, filers repay debts over time and the remainder is forgiven. Chapter 13 filings were down 3% in February. This is particularly noteworthy because, as the article noted, Chapter 13 is the type of bankruptcy recommended for homeowners who want to save their homes.

As Covina personal bankruptcy lawyers, we'd also like to note that the 2005 changes to bankruptcy law were specifically intended to push more households toward Chapter 13. In brief, the changes allowed fewer people to qualify for Chapter 7 filing by lowering the amount of income and assets that would disqualify them. This makes the movement away from Chapter 13 even more remarkable, because it shows that fewer Americans have enough income and assets to disqualify them from Chapter 7. This is a bad sign for the economy. The lower number of Chapter 13 filings is also a bad sign because it shows that not many people are finding bankruptcy useful for saving their homes. This may mean they don't have enough home equity to protect them. Finally, the spike in Chapter 7 filings suggests that one stated goal of the 2005 bankruptcy law isn't working -- there's no drop in unpaid debt, despite increased obstacles to filing for bankruptcy.

Continue reading "February Bankruptcy Filings Show Personal Bankruptcies Continue to Rise" »

Our Corona fair debt collection attorneys work every day with people who are being harassed, insulted or lied to by collection agencies. So we were pleased by a March 3 release from the Federal Trade Commission about a settlement that agency reached with an Ohio agency guilty of serious abuses. Credit Bureau Collection Services, a private company not affiliated with the major credit reporting services, agreed to pay $1.1 million to the FTC to settle the agency's claims against it. The company also agreed to sign a consent decree barring it from further violations of the law, including making untrue or unsupported statements to collect a debt, and trying to collect a debt without investigating a consumer's dispute of the debt.

CBCS and two of its officers, Larry Ebert and Brian Striker, were accused of violating both the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. Specifically, the FTC alleged that they failed to investigate disputes from debtors showing that they had already paid off the debts, or were not the people who owed the debts. Furthermore, the defendants allegedly continued to try to collect on those disputed debts without any reasonable basis to do so. They were also accused of reporting information to credit agencies despite disputes or proof that it was not accurate; failing to investigate notices of disputes from credit agencies; and failing to report disputes to the credit agencies. The content decree requires CBCS, Ebert and Striker to refrain from all of these practices and other violations of the two federal laws.

All of this information may sound very dry if you're not familiar with the legal side of credit and collections. But as Fountain Valley debt collection harassment lawyers, we know these practices can ruin the credit of an otherwise responsible person. The credit reporting system relies to some extent on the honesty of those who report credit. If companies like CBCS lie to credit bureaus about a particular individual's credit, that individual will have to do a lot of work to clear his or her name. That's why the FCRA allows the FTC and individuals to sue companies for willful or negligent violations of the law. Similarly, blatant violations of the FDCPA, such as failure to investigate a dispute of a debt, allow victims to sue the violating collection agency.

Continue reading "FTC Sues Debt Collector for Trying to Collect Old Debts and Reporting False Credit Information" »

Our Ontario loan modification attorneys wrote last week about several Sacramento-area lawsuits alleging that lenders are deliberately trying to push borrowers into foreclosures. This is not a common allegation, but a March 2 article from the San Jose Mercury-News shows that lawsuits in general are an increasingly common tactic in California for homeowners desperate to keep their homes. The article said federal lawsuits over the Truth in Lending Act or wrongful foreclosure have skyrocketed in the past five years, from just 29 in 2005 to 1,395 last year. Many more may be filed in state courts. Lawsuits typically allege that the bank reneged on a loan modification deal, or made an original loan that it never should have made.

Both are claims made by Sonia Leverman, one of the plaintiffs in the article. The Sunnyvale homeowner was given English-only documents to sign for her adjustable-rate mortgage even though she doesn't speak English well. She says she was shocked when the rate shot up by nearly $2,000 a month, shortly after her husband lost his job and her sons' work hours were cut back. The family later completed a three-month trial loan modification, only to be denied a permanent loan modification because, the lender said, their third payment was late. They have a Western Union receipt showing it was on time. Finally, they hired a loan modification attorney who sued the loan servicer for breach of contract. Now, they're on track for a permanent modification, although they're still underwater.

The family's lawyer said the servicer refused to negotiate until he got involved. This is typical in our experience as Bellflower loan modification lawyers. Lenders and loan servicers believe they can make more money by foreclosing than by helping modify a loan that they don't think the borrower can pay off. Rather than say so, they find excuses to derail permanent loan modifications, allowing them to look like they're trying to help. Meanwhile, borrowers who are genuinely trying to meet their financial obligations get a "runaround." That's true even in cases like Leverman's, in which there was strong evidence of wrongdoing and thus a clear risk that the family would take legal action. In addition to the dispute over the on-time payment, providing English-only documents to Leverman may have been a violation of California's Foreign Language Contract Act.

Continue reading "Californians Increasingly Sue to Enforce Loan Modification Deals With Lenders" »

Our San Bernardino County loan modification attorneys have known for months, if not a year, that banks are letting more time go by before re-selling foreclosed homes. But a Feb. 27 article from the Los Angeles Times says borrowers are starting to notice -- and living in the homes rent-free while the lender delays a foreclosure or a sale. Reasons the article gives for the trend include large backlogs at banks; the low prices foreclosure sales can get in the housing market; the glacial loan modification process; and banks' ability to use former homeowners as unpaid maintenance workers. In fact, at least one lender, Citibank, has formalized the arrangement, allowing foreclosed homeowners to stay rent-free for six months if they hand over the lease.

One economist estimated that as many as 100,000 families could be living rent-free in the Inland Empire alone, judging by the difference between the number of loan delinquencies and the number of foreclosures. Among them are the Harrisons of Perris, one of the most foreclosed cities in California. Eugene and Patricia Harrison stopped paying their mortgage in October of 2008 because of a job loss, and went into default after Countrywide Financial, their mortgage holder, told them they needed to be in default for a loan modification. Since then, they've received several contradictory or confusing notices from the bank, including an order to vacate that was not enforced. Sixteen months after their last mortgage payment, they are still arguing with Bank of America, which bought Countrywide, for a loan modification.

If this trend holds, it could be a gift to struggling homeowners. Most people go into default on their mortgage payments because they have financial problems. Allowing these homeowners to live rent-free for months lets them save their money, so they can find a rental home or get legal help. But as Westminster loan modification lawyers, we are disappointed that stories like the Harrisons' are still so common. Countrywide Financial was one of the leading subprime lenders, which authorities believe was why it failed, and why many former Countrywide customers are entitled through legal settlements to loan modifications. The article doesn't say whether the Harrisons would qualify, but it's clear from the article that Bank of America has not given their case enough attention to resolve it properly.

Continue reading "Report Says Banks Increasingly Allow 'Squatting' by Foreclosed Homeowners" »

Our Redlands loan modification attorneys have believed for many months that mortgage lenders are not very interested in modifying loans. But according to a Feb. 22 article in the Sacramento Bee, at least 11 lawsuits in the region allege that one lender has actively tried to push its borrowers into foreclosures. The claims against OneWest Bank stem from its purchase of the failed IndyMac Bank from the FDIC. To sweeten a deal that would give OneWest a lot of troubled loans, the FDIC agreed to absorb some of the losses from those loans. The lawsuits allege that this makes it more profitable for OneWest to foreclose than to allow loan modifications, even though it is participating in the federal Home Affordable Modification Program.

Ten of the claims are in U.S. Bankruptcy Court for the Eastern District of California, and one is in state civil court. One of the attorneys for the bankruptcy cases said IndyMac bought the bad loans for 70% of their value, but can expect FDIC reimbursement for 80% or more of the losses on the loans, and can keep any proceeds from a foreclosure sale. He said this means OneWest can actually make more money on a foreclosure than it could by keeping the loan alive at a discount. He and another bankruptcy lawyer also said OneWest illegally increased mortgage payments after their clients filed for bankruptcy. In the state court case, the plaintiff claims OneWest violated the Truth in Lending Act by ceasing meaningful responses after it took over an IndyMac mortgage.

As Chino Hills loan modification lawyers, we have filed several lawsuits with similar claims about foot-dragging that violates the TILA. However, the claims about the FDIC reimbursement agreement are new to us, and disturbing. We have long since concluded that most lenders have a policy against making loan modifications, even if they claim they grant them and are participating in HAMP. Studies have repeatedly shown that lenders sometimes stand to make more money on a foreclosure. Other times, blind application of policy or balance-sheet trickery blocks loan modifications for borrowers who are willing and able to make payments. This applies to lenders without an FDIC reimbursement deal. Similarly, all creditors, no matter what their relationship with the government, are forbidden from trying to collect debts after a bankruptcy is filed.

Continue reading "Sacramento Lawsuits Allege Lender Deliberately Pushes Borrowers Into Foreclosure" »

Our Fullerton loan modification attorneys were very interested to learn that the federal government is still looking for ways to improve the Home Affordable Modification Program. A Feb. 22 article in the Wall Street Journal says the Treasury Department, which administers HAMP, is considering several changes that would give borrowers more chances to fight an unfair denial by their lenders. Most importantly, the proposed rule would require lenders to give borrowers thirty days after a denial of a HAMP application to respond. The idea is to allow borrowers to appeal the lender's decision without fear that the lender will foreclose.

The proposal is part of internal federal documents and is not final. A spokesperson for the Treasury Department said it was one of many ideas under consideration and that no announcements are scheduled. Other parts of the proposal included:

• Expanding the requirement to make "reasonable solicitation efforts" to let borrowers know they qualify for HAMP. The proposal would specify that lenders must contact any borrower whose payments are late by 60 days or more and who is eligible for HAMP, with at least four phone calls and two letters, one certified.
• A requirement to certify in writing that the borrower is not eligible for HAMP before a foreclosure sale.
• A requirement to suspend foreclosure proceedings while a HAMP application is being considered. This is not currently mandatory, although many lenders say their policy is to suspend foreclosures.

The article says the proposals would slow down the already slow foreclosure process. That may be an implicit criticism, but we're not sure we see anything wrong with slowing it down. These proposals seem designed to address common complaints about lenders' behavior in HAMP, particularly complaints about incorrect denials and foreclosures happening during a loan modification application. Many borrowers have gone to the media with stories about being foreclosed on after a loan modification was granted, suggesting that lenders' left hands don't talk to their right hands often enough. If another month is what it takes to prevent this sort of seeming incompetence, our Colton loan modification lawyers are okay with a delay -- especially since lenders already routinely drag their feet on applications.

Continue reading "Treasury Department Considers Adding Appeal Period to HAMP" »

As Costa Mesa debt settlement attorneys, we have been guardedly optimistic about the CARD Act for some time. This credit-card reform bill was passed last year and some of its provisions took effect in August, but the remainder became active Feb. 22. According to an article by McClatchy Newspapers, the law may help consumers avoid some of the most costly deceptive practices by credit card companies. However, other abusive practices remain unchecked, and credit card companies have already raised their rates to compensate for anticipated losses.

As of last August, credit card companies could not raise interest rates without 45 days' notice, and had to send bills at least 21 days before the payments were due. This week's new provisions add to those protections considerably. Companies may no longer raise customers' interest rates on existing balances until a bill is at least 60 days overdue. If a cardholder pays on time for six months after this happens, the credit card company must drop the interest rate back to its original size. Among other things, this will stop the practice of "universal default," in which a credit card company raises rates on all cards because of a late payment on one card. The article estimated that this alone will save U.S. cardholders $10 billion a year. Other provisions include:

• A requirement to get permission before allowing cardholders to spend over their credit limits.
• A prohibition on a practice called "double-cycle billing," in which the credit card company charges interest on the average daily balance over the past two months to determine the interest charge, rather than using the current month's balance.
• A requirement to put any payment over the minimum payment toward the balance with the highest interest rate. This applies only when there's more than one balance, of course.
• For cards with a high annual fee, a limit on that fee in the first year to no more than 25% of the total credit limit.

When the Act was passed, our Fontana debt settlement attorneys were disappointed that it didn't go further. Nonetheless, we believe this will help many credit-card holders avoid becoming financially entrapped by provisions that they didn't expect and had little way to learn about. Double-cycle billing, for example, was perfectly legal before the CARD Act, but not at all intuitive and arguably deceptive. By reducing that kind of deception in credit card lending, the law will give people fuller information with which to make good decisions about their money. It will also reduce the amount of money companies can charge their customers, which will slow the growth of debts. In the long run, this may actually benefit credit card companies, because it may keep their customers from getting so deep into debt that they're forced to file for personal bankruptcy.

Continue reading "CARD Act Protecting Buyers From Unfair Policies Finally Takes Effect " »

Federal statistics on loan modifications under the Home Affordable Modification Program have not been encouraging. So our Rancho Cucamonga loan modification lawyers were pleased to see a sharp increase in temporary modifications made permanent in the Treasury Department numbers released Feb. 17. According to the Feb. 18 Los Angeles Times, lenders stepped up in January, increasing the number of permanently modified loans from 66,465 at the end of December to 116,297 at the end of January. Another 76,482 modifications were approved and waiting for acceptance by the borrower, the report said.

HAMP was announced about a year ago as the Obama administration's attempt to slow foreclosures and help the housing market recover. However, the program has come under intense fire in the past year as a "failure," because very few modifications have been done compared to the estimated 3.4 million mortgages eligible. The program's slowness has attracted criticism of the participating lenders as well as the government and, to a lesser extent, borrowers who don't follow instructions well. The January numbers say 28% of eligible homeowners have now entered the program through all participating lenders. At Bank of America, the nation's largest loan servicer, that number was 22%, up from 15% in December and 12% in November. And HousingWire reported that California has the most active HAMP loans, trial and permanent, in the U.S.

This is good news for our clients. As Corona loan modification attorneys, however, we'd like to know what role public relations played in the sharp upswing in loan modifications. We wrote in December about a meeting the federal government called with participating lenders, in which it reportedly chastised them for their very low rate of conversions as of November. Treasury officials also planned to require more frequent updates from participating lenders and even fine those that don't respond fast enough. We suspect these actions had a strong effect on January's loan conversion numbers. As with other aspects of HAMP, we believe lenders simply declined to take serious action to prevent foreclosures until the government "shamed" them publicly or added teeth to the program.

Continue reading "New Federal Data Shows Sharp Increase in Permanent Loan Modifications" »

A year after President Obama announced his Making Home Affordable plan to slow foreclosures, the plan has been heavily criticized. From the left, and from Ontario loan modification attorneys like us, the criticism has focused on the plan's lack of teeth -- nothing compels lenders to participate, or complete their side of the deal in a timely manner. A Feb. 14 article in the New York Post makes the same criticism, but of a similar program in New York state. The Bankruptcy Loss Mitigation Program, a project of bankruptcy judges in the Southern District of New York, has produced fewer than 10 permanent loan modifications out of 808 applicants, the newspaper said. And according to many personal bankruptcy attorneys, the problem, as with HAMP, is that the plan doesn't motivate lenders to actually complete the deals.

Under the Bankruptcy Loss Mitigation Program, lenders and borrowers are supposed to meet face to face to negotiate a loan workout whenever the circumstances make one possible. That part of the program is working, says Judge Cecelia G. Morris of Poughkeepsie bankruptcy court. But consumer bankruptcy attorneys say the rate of loans actually modified is miserable. One attorney said he hasn't had a single case in which the lender got the paperwork right the first time. This is also a common complaint from borrowers and attorneys trying to participate in HAMP, who say they've been strung along for months by lenders who repeatedly lose paperwork, ignore it for months or give contradictory instructions. Another attorney suggested that banks would have a stronger incentive to finish loan modifications if bankruptcy judges were allowed to reduce principal on primary homes, as they are currently allowed to do with second homes and vehicles.

That attorney was referring to "cramdowns," a proposal that unfortunately died in Congress last year due to strong lobbying from the financial industry. Our Chino loan modification attorneys agree that cramdowns would incentivize lenders to get the deal done. If lenders know they may lose money by forcing a borrower into bankruptcy, they are much more likely to complete a loan modification deal in which they lose far less money and can better control the terms. As things stand, lenders lose nothing if they force borrowers into bankruptcy by refusing to make a good-faith effort to modify loans. This is the real problem behind the "failure" of HAMP, and we do not believe it will be fixed unless authorities find some way to show lenders that making the modifications is in their best interests.

Continue reading "New York State Loan Modification Program Called Ineffective Because It's Voluntary" »

As San Bernardino County loan modification attorneys, we have been reluctant to write about media coverage of the trend toward homeowners "walking away" from their mortgages. We find that despite the wealth of coverage of this emotionally charged issue, the vast majority of our clients have personal and financial reasons to look for other solutions first. However, a Feb. 16 article from CBS News provides a good overview of the pros and cons of this decision. CBS MoneyWatch.com editor at large Jill Schlesinger said the decision may be right for some people, but it's not one to make lightly.

Walking away from a mortgage means moving out and stopping payments because it makes more financial sense to leave than to stay -- not because you can't afford the mortgage. These "strategic defaults" are done because the borrowers are deep underwater and the numbers show that their finances will recover sooner this way. Not surprisingly, Schlesinger warned readers that any default, including a strategic default, will destroy their credit for seven years. She advised borrowers to weigh this against the prospect of being locked into a mortgage payment two to three times the price of rent. You may want to consider a strategic default if you're more than 20% underwater, she said, but you should always do the math. Interestingly, Schlesinger added that most borrowers are reluctant to consider walking away until they see the numbers convincing them that it's a better long-term financial move.

Our Pomona loan modification lawyers know firsthand that borrowers don't make this decision casually. We have represented candidates for a loan modification from the beginning of the housing crisis. In most cases, our clients have strong emotional reasons for wanting to hold on to their homes, along with practical reasons like wanting to keep the down payment or keep their children in good schools. However, when the math shows that a default or a personal bankruptcy makes more sense than fighting for the home, we don't hesitate to explain that to our clients. As Schlesinger points out, large real estate developers have walked away from soured investments for the exact same reasons, without creating the outcry aimed at individual homeowners making what is ultimately a business decision.

Continue reading "CBS News Financial Expert Discusses Pros and Cons of 'Walking Away'" »

As Riverside County loan modification attorneys, we have been skeptical about reports that the housing market is rebounding. A Feb. 16 article from the Associated Press feeds that skepticism by reporting that the number of people behind on their mortgage payments rose at the end of 2009. This continued the disturbing trend of delinquency rates rising over the last year's for each previous year, and reversed a trend toward smaller gains in delinquencies for the rest of 2009. Credit reporting agency TransUnion, which reported the numbers, said it expects foreclosures to continue rising throughout 2010.

TransUnion counts a mortgage delinquent when the borrower is at least two months overdue with a payment. It collected data using its database of credit information on 27 million people. It said in the fourth quarter of 2009, 6.89% of mortgage payments were at least 60 days overdue. That's up from 6.25% in the third quarter of 2009, and from 4.58% in the last quarter of 2008. A spokesperson for TransUnion said a certain amount of uptick is normal during the holiday season, when some people prioritize holiday spending over paying debts. But the trend may go beyond the seasonal, he said, especially if it continues into 2010. Furthermore, adjustable-rate mortgages written in 2006 and 2007 are likely to reset to higher numbers this year, which will create high mortgage payments and eventually more debt. That means more delinquencies are likely, and foreclosures will follow.

Our Fontana loan modification lawyers would like to declare that the market is improving, but the numbers just aren't there. In addition to the considerations mentioned in the article, we believe the continuing high rate of unemployment is a factor. The article does mention that the average amount of debt in new mortgages has increased slightly, which is a good sign because it shows that home prices may be rising slightly. We agree with the TransUnion spokesperson that increasing and stabilizing home prices will be key to the housing market's recovery. Unfortunately, this won't happen quickly unless lenders take a more active approach to stopping foreclosures -- or the federal government requires them to.

Continue reading "Mortgage Delinquencies Remain High in Last Quarter of 2009" »

The New York Times recently ran a story on an approach to negative equity that intrigued our Redlands loan modification attorneys. According to a Feb. 8 post on the Bucks Blog, a private equity company has begun offering lenders and mortgage servicers a program intended to stop "strategic defaults." That term refers to the practice of homeowners walking away from their mortgages when they owe substantially more than the homes are worth. The Loan Value Group offers lenders a chance to hold on to these borrowers by essentially paying the borrowers to stay put. Specifically, the group offers to pay back some of the negative equity when the mortgage is paid off, as an incentive for homeowners to hold on.

The company works only with homeowners who can afford their mortgages, but who are at risk for strategic default because it makes more financial sense to stop paying. It works with client banks and mortgage servicers to identify at-risk borrowers, using a combination of location, income and negative equity information. Then, targeted borrowers are offered money payable when they fulfill the terms of their loans, whether that means paying off the mortgage, refinancing or a short sale. The payment is calculated to be just enough to keep them in their homes, but not enough to make up all of their negative equity. The Times said this typically works out to 8 to 10 percent of the loan's value, but could be as much as 20 percent in boom-and-bust areas. The lender avoids taking a loss in a foreclosure and the borrower stays in the home.

As Costa Mesa loan modification lawyers, we're interested in anything that seems to offer a solution that keeps homeowners in their homes and doesn't meet strong opposition from banks. We believe bankers' reluctance to lose profit (real or imaginary) is the primary problem with loan modification programs, as well as the reason they opposed mortgage cramdowns in bankruptcy. This program may meet those conditions. However, we'd be interested in knowing more about the Loan Value Group's own business model. All businesses exist to make money, and it's important to evaluate whether a business makes money to your detriment before signing on. And borrowers participating should realize that the offer won't necessarily solve their problems. Before signing on, they should do the math and make sure an eventual reward makes it worthwhile to stay on.

Continue reading "Private Fund Invents Program Paying Underwater Homeowners to Stay Put" »

As Rialto loan modification attorneys, we were very interested to get a glimpse into a complaint against a major bank by one of its own former employees. The blog Consumerist ran a post Feb. 8 about a former Bank of America employee who was laid off last year after 21 years, most recently doing due diligence on loans. Vince K. also had a home loan through Bank of America, and he couldn't pay for it after he lost his job, so he arranged a short sale. Unfortunately, the bank never took the loan off its books after the sale, which led to debt-collection phone calls at 4 a.m. and a bill for insurance on a property he no longer owns. In January, a year after his layoff and five months after the short sale, he finally wrote to Bank of America CEO Brian Moynihan to beg for a sensible resolution.

The letter-writer starts out by acknowledging that he owes money for the deficiency balance -- the mortgage debt left over after the proceeds of his short sale. He said he was aware that he owed the money, but that the bank's way of handling this was to "robocall" him at 4 a.m. After weeks of such calls, he tried to contact someone at the bank directly and eventually ended up talking to someone who put his account into collections. He had to call to straighten that out before he could start making payments on the deficiency -- very small ones out of his unemployment check.

During that time, it became clear that the bank hadn't removed his loan from its books, in part because it was sending Vince K. letters demanding that he buy insurance on the property he sold. The bank eventually "force placed" insurance and billed him for it. Then he began receiving collection phone calls about the mortgage debt again. Despite explaining his situation, then reaching out to contacts in the company, he couldn't stop the calls. Finally, he wrote this letter to the media and to the CEO, explaining his problem in detail and with documentation.

Our Placentia loan modification lawyers have read many horror stories like this, but rarely in so much detail and from someone who understands the company from the inside. If the allegations in the letter are true, it seems clear that Vince K. is a victim of severe incompetence by the bank. Not only has the bank failed to clear his mortgage debt off its books, but it has repeatedly violated the Fair Debt Collection Practices Act by attempting to collect debt that is not validated and by calling outside the legally allowed hours. Furthermore, we think it's significant that all of this happened to a former Bank of America employee who presumably knew which departments and people to speak to about the problems. If someone like that can't get a basic problem solved, the chances must be even lower for someone with no bank experience or connections.

Continue reading "Laid Off Bank Employee Writes CEO to Complain About Banks Mortgage Mistakes" »

A federal appeals court recently made a ruling that pleased us greatly as Riverside County fair debt collection attorneys. InsideARM reported Feb. 3 that the Second U.S. Circuit Court of Appeals, the federal appeals court for New York, Connecticut and Vermont, has ruled in favor of more notice to consumers when debt collectors start lawsuits very quickly. In the case, Ellis v. Solomon & Solomon PC (PDF), a collections law firm started its collection efforts against Janet Ellis with the legally required notice that the debtor may dispute the debt within 30 days. About halfway through that 30-day period, the law firm sued the Ellis. She eventually sued it back for violating the Fair Debt Collection Practices Act.

In her lawsuit, Ellis claimed that Solomon and Solomon and two of its attorneys had violated the FDCPA in several ways. However, the appeal focused on whether the law firm misled her when it sued during the 30-day validation period, without providing notice that the validation period was not over. A trial court in Connecticut agreed and ruled for Ellis on that part of the case. The law firm appealed to the Second Circuit, but it too sided with Ellis. Under the law, the court said, new notices must not overshadow or be inconsistent with the original validation notice. Applying a test that takes into account what the "least sophisticated consumer" would think, the appeals court decided that such a consumer might be misled into thinking a lawsuit supersedes the original notice. Thus, the court agreed that the law firm had violated the FDCPA.

As InsideARM noted, this ruling will probably mean that debt collectors who sue during the 30-day validation period have to make it clear that it's still possible to dispute the debt. Our Ontario debt collection harassment attorneys believe this will be valuable for people hit by debt notices. In our experience, most people who receive a debt collection notice don't understand it well, or understand their rights generally. It's not hard to believe that someone without any special legal experience might be confused by a lawsuit that hits halfway into a thirty-day notice. The second notice the court required is a simple solution to this problem that won't cost collection businesses much extra money. And of course, those wishing to avoid a second notice can always wait out the 30 days before suing.

Continue reading "Court Says Second Notice Required When Debt Collectors Sue During Validation Period" »

Our Fontana debt collection attorneys are not big fans of the practice of buying and selling debt. This is a standard practice in the debt collection industry, in which an original creditor like a cell phone company writes off a debt as bad, then sells it for pennies on the dollar to a dedicated debt collector. That sale can be repeated many times. According to a Feb. 3 article in The Kiplinger Letter, a Government Accountability Office report (PDF) says this practice causes serious problems for consumers. Because information goes missing when debt information is passed from hand to hand, debt collectors can end up collecting debt that's already paid, discharged in bankruptcy or belongs to someone else. The article suggested that this contributed to 2009's sharp upswing in debt collection complaints.

Thanks in part to the GAO report, the article said, the FTC is scrutinizing the debt collection industry more closely than before. Not only is the agency requesting information on how debt buyers do business, but it's enforcing the law more aggressively. That includes requesting bigger legal settlements as well as holding debt collection leaders personally responsible for violating the law. Action by lawmakers may be next, the article said. In fact, the GAO report called on Congress to make several changes to the Fair Debt Collection Practices Act. The law should be updated to require debt collectors to keep information accurate enough to verify debts, the report said. Congress should also update the FDCPA to reflect new technologies and give the FTC rule-making authority.

As Chino Hills unfair debt collection lawyers, we like these recommendations very much. The lack of documentation caused by debt resales can lead to serious problems, because debt collectors generally don't trust debtors. When a debtor says he or she is not the original creditor, or that the debt was paid off, collection agents may assume it's a lie and just keep on calling. In fact, because the information is missing, debt collectors can use lack of proof as a shield against accountability for knowingly calling people who don't truly owe debts. Requiring collection agencies to keep proof of the debt on hand will allow people to exercise their rights under the FDCPA. And giving the FTC rule-making authority will allow it to update the law to deal with innovations like text messaging, more quickly than the political process in Congress generally allows.

Continue reading "Government Report Says Buying and Selling Debt Causes Anti-Consumer Mistakes " »