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Collection Actions: 9.6.7.1 Why Nursing Homes Sue Third Parties

Nursing homes file lawsuits against third parties for nursing home debts because collecting directly from residents is often futile. Many nursing home residents are income and asset poor, with income sources that are generally protected from collection (e.g., Social Security benefits, pension, VA benefits, etc.). Medicaid liens on real property also make it nearly impossible for nursing homes to enforce judgments against a nursing home resident’s home equity.

Collection Actions: 11.1.1 Need for Criminal Justice Debt Representation

The methods available to collect criminal justice debts—also referred to as “court debts,” “legal financial obligations,” “financial sanctions,” and “fines and fees”—can be draconian. Criminal justice debts are defined herein as debts imposed by the government on those accused of criminal or traffic violations or civil infractions.

Collection Actions: 11.1.2 Topics Covered in This Chapter

Criminal justice debt refers to financial obligations imposed on those accused of an infraction, misdemeanor, or felony, including costs that may accrue after sentencing. Criminal justice debt is also called court debt, criminal debt, legal financial obligations (or LFOs), monetary sanctions, and fines and fees. This chapter uses the term “criminal justice debt” even though the debt may result from civil infractions such as jaywalking or minor traffic violations.

Collection Actions: 4.3.4.1 Ownership Is a Precondition to a Collection Suit

A debt buyer’s business model is to purchase debts for pennies on the dollar and then seek to recover on those debts with a minimal investment of effort. The debt buyer is unlikely to put much effort into establishing proper documentation of an assignment when it is suing the consumer on one relatively small debt and, if challenged by the consumer, will often have difficulty meeting its burden of proving that it owns the debt.

Collection Actions: 4.3.4.2.1 Collector must produce the actual document assigning ownership

A debt buyer must prove that it has been assigned an account through tender of proper documentation specifically relating to the particular account at issue.245 It is insufficient to introduce a notice from the assignor to the consumer that it is assigning the debt to the assignee.246 The actual assignment document should be introduced into evidence.247 In fact, a number of state statutes explicitly require that a copy of the actual assignmen

Collection Actions: 4.3.4.2.2 Assignment document must reference the account at issue

Debt buyers may be able to produce the forward flow agreement and bill of sale delineating the relationship between the debt buyer’s assignor and the debt buyer, but the document will make reference only generally to thousands of accounts being purchased at the same time and will not identify the consumer’s account. Such evidence is not enough. An assignment document must indicate that one of the thousands of accounts the collector has purchased is the account at issue in the lawsuit.

Collection Actions: 4.3.4.2.3 Other defects in the assignment document

Carefully review all documents of assignment because they are often incomplete or illegible. In one case, the court found an assignment to be improper when the debt buyer submitted only four pages of a twenty-plus page loan sale agreement.262 The court observed: “The first page, entitled ‘Loan Sale Agreement’ merely identifies the parties and states the effective date of the transaction. The second page contains a pair of signatures, third page contains a redacted table of four accounts.

Collection Actions: 4.3.4.2.4 Statutory requirements as to proof of the assignment

At least seventeen states—California, Colorado, Connecticut, Delaware, Illinois, Indiana, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, New York, North Carolina, Oregon, Texas, Vermont, and Washington—and the District of Columbia have special statutory requirements that pleadings include proof of an assignment and specifying the nature of that proof.

Collection Actions: 4.3.4.3.1 Overview

A debt buyer cannot merely show that it received an assignment of the obligation from its immediate assignor (unless the assignor was the original creditor).290 The debt buyer also must show a continuous, unbroken chain of assignments from the original creditor to the entity collecting on the debt.291

Collection Actions: 4.3.4.3.2 Assignor in one link must have exact same name as assignee in prior link

At each link in the chain of ownership, the entity that has been assigned a debt must be identical to the entity that subsequently assigns it to the next buyer in the chain. For example, there is a break in the chain when evidence is offered of a transfer from Discover Bank to Vision Nevada, Inc. followed by a transfer from Vision Management Services to the current debt buyer.297 The current debt buyer must provide evidence that the two Vision entities are the same or that Vision Nevada, Inc.

Collection Actions: 4.3.4.4 Determining What Rights Have Been Assigned

Check at each transfer of ownership what rights were assigned to the assignee. An assignment should describe the rights assigned with sufficient particularity to identify the rights assigned, and the assignment should not be construed to assign additional rights not expressly described.313 Rights assigned can be to account receivables, rights under the credit agreement with the consumer, or choses in action.

Collection Actions: 4.3.4.5 Is Notice of Assignment a Precondition to Suing on the Debt?

State law may require that the consumer be notified when a debt is assigned to another owner.321 When a collector can produce no evidence that notice of the assignment was provided, courts have dismissed the collection action because the notice is a precondition to a collection action based upon the assigned debt.322 A number of cases interpreting New York law also find that an assignor’s failure to provide notice of the assignment makes the assignee’s collection action improper.

Collection Actions: 4.5.1 Introduction

A common collector cause of action is breach of contract. The consumer entered into a credit agreement and defaulted, and the creditor has incurred damages. In a closed-end credit obligation—where the total obligation is spelled out in the contract—this claim is relatively straightforward. The collector, after establishing its standing, must prove the existence of a binding contract, the consumer’s default, and how much of the original obligation is unpaid.

Collection Actions: 4.5.2 What State’s Law Applies?

Many consumer credit contracts specify what state’s law applies to the contract, which often is not the law of the consumer’s residence or of the state where the consumer entered into the contract. In any case based upon breach of contract, litigants must be aware that the court may utilize the contractually chosen state’s law and not the forum state’s law.

Collection Actions: 4.5.3.1 Generally

To recover on a breach of contract claim, the collector must prove not only that the consumer has assented to a contract but the terms of that contract. Invariably, this means that the collector must produce into evidence the actual contract that the consumer has agreed to, with some evidence that the consumer has, in fact, agreed to it.337 The contract must also be properly introduced into evidence by someone with personal knowledge.338

Collection Actions: 4.5.3.2 Contract’s Unavailability No Excuse for Non-Production

A collector unable to produce the applicable contract cannot excuse this lapse by pointing to federal Truth in Lending Act and Equal Credit Opportunity Act regulations that require creditors to retain documentation of a credit agreement and credit application for at least twenty-five months.342 These regulations do not condone destruction of the documents after twenty-five months, and they certainly do not state that a debt can be collected without proof of a contract.343

Collection Actions: 4.5.3.3 Production of the Contract Applicable to the Particular Consumer

To prove breach of contract, collectors must produce a written agreement that is binding on the parties.351 Collectors must produce not just a standard form contract, but the version of the contract that the particular consumer agreed to.352 Courts have dismissed cases when the collector submits a generic, undated, and unsigned “customer agreement” that does not even contain the consumer’s name or any indicia relating the document to the consumer.353

Collection Actions: 4.5.3.4 Proving Consumer Assent to the Contract and Contract Charges

To prove breach of contract, the collector must not just introduce the applicable contract, but prove that the consumer has agreed to that contract. Ordinarily, proving that the consumer has agreed to a contract requires little more than producing the consumer’s signature on a contract. For credit card agreements in particular, this may not be possible because the consumer may never have signed the contract.

Collection Actions: 4.5.3.5 Does an Assignee Have Rights Under a Contract?

Ordinarily, an assignee has been assigned all rights under a contract. However, an assignee should not be able to sue under a breach of contract theory if it has only been assigned the right to receivables. A right to receivables gives the assignee the right to recover amounts owed the assignor, but not other rights under the contract—such as the right to future interest charges or attorney fees as granted by the contract.