During the economic crisis of 2008 and 2009, foreclosures and debt defaults skyrocketed – they happened in the millions.
While the immediate crisis has passed, foreclosures and debt defaults are still happening at a higher-than-usual rate, and many of the ones that happened during the crisis a few years ago are still making their way through the court system.
These cases have brought to light some practices by the foreclosure and debt collection industries which are, to be frank, appalling. Now, before I get into the details of some of these cases, I should make clear that I recognize the moral and legal obligation to pay one’s lawful debts. And if paying off a debt becomes truly impossible, we have the bankruptcy process to deal with such situations.
However, a debtor’s obligation to pay his lawful debts is not a blank check for creditors or collection agents to collect those debts by any and all means, and some tactics that debt collectors have employed are disturbing when they involve corner-cutting, and despicable when they involve actual fraud.
In one of the most egregious cases I’ve ever read about, a debt collection company rented some office space, and set up a fake courtroom in it. They would then send someone to the homes of debtors, wearing what looked like the uniform of a sheriff’s deputy. He would then create some official-looking documents which “ordered” the debtors to appear at the debt collection agency’s “courthouse.” There would usually be a thinly-veiled threat that failure to show up would result in a trip to debtors’ prison. Never mind the fact that debtors’ prisons haven’t existed in the U.S. since around 1850.
Once the debtor showed up to “court,” a person dressed as a judge would “rule” against them. This was sometimes enough to scare a debtor into paying a sum of money, giving the collector access to their bank account, or surrendering valuable property.
In another case, a large debt collection company used the name and signature of a person who died in 1995 on supporting affidavits that they attached to thousands of lawsuits which they filed against debtors. This is seen by many as a symptom of sloppy and defective paperwork used in by debt collectors. Often, large debt-collection companies will buy debts from original creditors – essentially buying the right to collect the debt. These purchases are usually in bundles made up of thousands of different debts, which might not be represented by anything more than a name, and an amount allegedly owed, in a line on a spreadsheet. Because this is rarely sufficient evidence to hold up in a lawsuit, it’s not entirely surprising that an unscrupulous debt collector would resort to manufacturing evidence when needed.
Of course, it’s not just debt collectors who have engaged in unscrupulous or sloppy practices. Some law firms that specialize in suing debtors on behalf of creditors (or collection agencies, as the case may be) are coming under fairly intense scrutiny for some questionable practices. One of the most common causes for concern is so-called “robo-signing” of legal documents. Because debt collection is a volume business, law firms that represent large creditors or debt collectors often file huge numbers of lawsuits in relatively short periods of time – sometimes thousands per month.
Some of these firms employ computer software which automatically generates court documents from a huge database of debtors – it just inserts the appropriate names, contact information, amount of debt owed, etc. in the appropriate fields. These documents are then printed out, and an attorney simply signs his or her name on all of them, since legal documents have to have the signature of the person who prepared them, and, conversely, the person who signs the documents must have had a significant hand in preparing them.
This type of spotty recordkeeping has caused some pretty serious mistakes, including a bank breaking into a house (which they foreclosed on by mistake) and taking all of the owner’s possessions, including the cremated ashes of her husband.
So, what can be done about this? This might sound cliché, but in cases like this, it’s apt: knowledge is power. Consumers have significant legal protections available to them when it comes to dealing with debt collectors, and one simply has to know how to employ them.
First of all, if you’re presented with something that looks like a legal document, it might not be. If you get anything that purports to be a court summons, a subpoena, an order to appear, or anything similar, you should show it to an attorney. They should be able to quickly determine if it’s a legitimate notice or not. If it is legitimate, they can then advise you about your options to defend yourself. If it turns out to be a fake, you might actually have legal recourse against whoever sent it to you.
Furthermore, if your house is being foreclosed upon, a good foreclosure defense lawyer can, at the very least, make the lawyers for the bank do their job: prove that they actually have a legal right to foreclose. In an era where debts are being bought and sold by the millions, and zipping between owners with the blink of an eye, this is sometimes harder than it sounds.
Also, if you’re receiving harassing phone calls or letters from debt collectors and you tell them to stop contacting you, they’re legally bound to do so. Of course, this doesn’t make the debt go away, but it does leave the debt collector with only 3 options: cut their losses and sell your debt to another debt collector, give up on trying to collect, or sue you for the amount you allegedly owe.
Of course, if you do legitimately owe the debt that’s being pursued, and you know it, it’s best to be honest about this fact.