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Collection Actions: 14.3.8.1 Generally

In general, a court can execute upon assets only if they are located within the reach of its service of process.134 The Restatement of Conflict of Laws provides that a state has the power to garnish a debtor’s chattel if the court has jurisdiction over the garnishee and the chattel is located in the state.135 Thus, the first question to examine in any interstate execution is where the asset at issue is located.

Collection Actions: 15.3.11.1 Generally

A federal rule, effective May 1, 2011, vastly strengthened protections for exempt federal benefits deposited into bank accounts.446 The rule, announced by the United States Department of Treasury (hereafter “Treasury Department”) and several benefits-paying agencies, limits creditors’ ability to garnish bank accounts that contain Social Security, Supplemental Security Income (SSI), VA, and certain other federal benefits.

Collection Actions: 11.4.3.4 Retirement Plan Income

As to federal debts for fines and restitution,201 federal laws supersede the normal rule that benefits covered by the Employee Retirement Income Security Act (ERISA)202 and section 401(k) retirement savings plans203 are protected in their entirety from civil postjudgment remedies prior to distribution.204 Nor do state protections for retirement income apply.

Collection Actions: 15.3.3.1 Nature of the Protection

The Social Security Act’s anti-alienation clause provides that “the right of any person to any future payment” of Social Security benefits is not transferable or assignable, and that “none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”305 A provision of the title of the Act that creates the Supplemental Security Income (SSI) program makes this same protection applicable to SS

Collection Actions: 15.5.4 Liability for Wrongful Seizure of Bank Account Funds

Judgment creditors and banks may be liable for wrongfully seizing funds from the debtor’s bank account. For example, in Cruthis v. Firstar Bank,628 the court upheld a jury determination that the bank had illegally converted funds from a debtor’s checking account. Acting on a letter from the debtor’s employer requesting the return of payroll deposits, the bank withdrew funds from the debtor’s account without notice.

Collection Actions: 10.2.15.11 Claims Against State Agencies

The extent of a state agency’s authority to impose government debt, the collection methods it can use, and the extent to which the debtor’s income and assets are exempt will be governed primarily by state law. States often provide a right to appeal an agency’s decision in court, similar to that allowed in the federal system by the Administrative Procedure Act. In many circumstances, there will also be avenues for affirmative suit, although sovereign immunity issues are likely to arise, and some types of claims may be confined to a specialized state court.

Collection Actions: 14.2.2 Due Process and the Taking of Property

Most courts agree that application of increased exemption amounts is not a taking of property without just compensation in violation of the Fifth Amendment, which is applied to the states through the Due Process Clause.25 A statutory “program adjusting the benefits and burdens of economic life to promote the common good” will be more deferentially reviewed than a physical taking.26 Courts will first decide whether an economic expectancy is solid enough to be treated as a property right prote

Collection Actions: 14.5.2 The Constitutional Balancing of Interests

It is clear that a debtor has a significant property interest in assets which are exempt from garnishment,238 and that garnishment involves state action sufficient to invoke Fourteenth Amendment protections.239 Nevertheless, it is only since the late 1970s that courts have seriously considered the due process rights of judgment debtors. The relative dearth of earlier litigation and analysis was largely the result of a 1924 Supreme Court decision, Endicott-Johnson Corp. v.

Collection Actions: 3.7.1 Raising the Defense

Particularly when a debt buyer is bringing a collection action, the statute of limitations is a key consumer defense. A statute of limitations defense can be raised as an affirmative defense and as grounds for a motion to dismiss, or later through a summary judgment motion or at the trial.

Collection Actions: 14.6.2 Statutes of Limitations for Enforcement of Judgments

The question of statutes of limitation on judgments becomes increasingly important as debt buyers purchase and seek to collect very old debts. Every state has a statute limiting the time period during which a judgment can be enforced. These statutes vary widely, ranging from four to twenty years, and most states provide that the period of enforceability may be extended by an application to the court within the limitations period, or a prescribed period thereafter.312

Mortgage Servicing and Loan Modifications: 6.5.9.1 Generally

The mortgage holder or servicer generally has forms which it requires for executing a workout agreement. These should be scrutinized carefully to make sure they are consistent with the agreement. If the homeowner has legal claims, an agreement that settles those claims may be appropriate.

Mortgage Servicing and Loan Modifications: 6.5.9.2 Watch Out for Waiver Clauses

Some loan modification agreements, from simple repayment plans to litigation settlements, contain waiver provisions that purpose to release the servicer and holder from any past or future claims that a borrower may have. Often the waiver appears in “legalese” at the end of the agreement or is buried in a long list of acknowledgments made by the borrower.110 The breadth of these waivers is astonishing and not likely understood by the borrower executing the agreement.

Mortgage Servicing and Loan Modifications: 6.5.9.5 Change the Account Number

Most servicers use automated record-keeping systems. Unless a thorough purge of the existing computer records is done, it is likely that, at some point, when the servicer generates a payment statement or history, some of the forgiven fees in the loan modification may get picked up and swept into your client’s current information. Changing the loan’s account number helps give the loan a fresh start, without the history of the fees, charges, and principal that have been forgiven in the loan modification.

Mortgage Servicing and Loan Modifications: 6.6.2 Credit Reporting Consequences

Loan modifications and other workouts may have a relatively minor adverse impact on homeowner’s credit rating. But this has to be put into context that a foreclosure will have a very serious adverse effect on a consumer’s credit score and credit report. In fact any existing default or even delinquency on a mortgage payment will already have adversely impacted a credit rating.

Mortgage Servicing and Loan Modifications: 6.7.1 Overview

During the height of the foreclosure crisis, a number of loan modification programs were created to attempt to stem the tide of lost homes. The most significant of these, the Making Home Affordable Program, began in 2009 and expired at the end of 2016. There were also loan modifications made by banks to satisfy their obligations under the 2012 National Mortgage Settlement between forty-nine attorneys general and the Department of Justice and the nation’s then five largest mortgage servicers.

Mortgage Servicing and Loan Modifications: 6.7.2.1 HAMP Described

The Obama Administration announced the Making Home Affordable (MHA) program in February 2009. The program, administered by the Treasury Department, ended at the end of 2016. MHA consisted of several components, most of which were only available for loans originated on or before January 1, 2009.

Mortgage Servicing and Loan Modifications: 6.7.2.4 HAMP Eligibility

Eligibility for HAMP modifications was broadened somewhat effective June 1, 2012 when Treasury created HAMP “Tier 2.”161 The older eligibility requirements still applied to the original kind of HAMP modifications, now called “Tier 1,” but the Tier 2 modification provided an alternative option for certain homeowners not eligible for the original program or who had redefaulted after receiving a “Tier 1” modification.162 Treasury also created the “Streamline HAMP” modification, effective January 1,