Judgment Collections – Page 12 – Creditors Rights 101

Using Social Media to Collect Debt: If You Can Navigate the Ethical Minefield, It Works 5% of the Time

A new trend in lawyer Continuing Legal Education are seminars advocating use of Social Media to Collect Debts. The seminars either advocate for social media as the tool of the future or caution that it is an ethical trap for debt collectors.

It’s a hot issue in debt collection. NPR did a story on this last year, and the Federal Trade Commission recently conducted a “Debt Collection 2.0” workshop on the issue. Frankly, it’s such a new issue that the Fair Debt Collection Practices Act (FDCPA) doesn’t exactly fit, but it’s close.

It’s definitely a trap for the debt collector, especially given that the FDCPA seems to apply to all communications, regardless of whether it’s a letter, e-mail, or friend request. Does a creditor have to identify themselves as a debt collector under the Act in an initial friend request? Does the friend request (i.e. an “initial communication”) have to be followed by the Act’s required debt validation warning (15 USC 1692g)?

I have no idea. My philosophy is, when in doubt about ethics, choose the safe route. Here, the safe route is avoiding affirmative contact but, if the profile is public, then by all means use whatever you can publicly find.

Just yesterday, I was trying to locate a defendant who had disappeared–all of the searches kept going back to his old house, where the residents swore he no longer lived. But, I found an online profile for him on Map My Walk, a site that allows people to track their running and walking routes. You can guess the rest: everyday, his walks started and ended at the address that I had, providing confirmation of his address (and what time he was home in the afternoon).

At one time, I saw social media as the future of debt collection, especially in the early days of social networking sites (Myspace, Friendster, early Facebook), when people didn’t think twice about privacy settings. Now, people are more savvy about online privacy. (And it’s not necessarily to dodge debt collections–it’s more likely to avoid the boss seeing your party photos.)

Even though people can post pictures of their new car or brag about their promotion at work, most people know better. But, not everybody knows better–and, if they are going to put it online where anybody can see, they can’t complain when a debt collector finds it.

My final take? It’s not the wave of the future in collections. It’s a box to check in the process, but not the solution to finding debtors or their assets.

Slow Pay Motions in Tennessee: They’re Not That Bad

Some creditor clients believe that, once they get a judgment, it’s then just a matter of counting the money. Well, not my clients, because I constantly warn them all that a judgment is just a part of the collection process. Collections takes time, I tell them, and the judgment debtor may want (or need) to stretch the repayment out.

And, whether a creditor likes it or not, a debtor can force a creditor to accept payments over time.

It’s called a “Motion to Pay Judgment by Installments,” and it’s provided for under Tenn. Code Ann. § 26-2-216. That statute allows a debtor to ask that any wage garnishment or bank levy be stayed so that the debtor can make court ordered installment payments. The motions must be supported by an affidavit showing the debtor’s inability to pay the debt with funds other than wages, and this is usually supported by a budget showing income and expenses.

In this economy, you’re going to see these. Here are some hints:

The debtor may make only one of these motions. See § 26-2-216(a)(3).
Once the debtor defaults with any obligation under the payment proposal, all bets are off and you can collect.
Because it requires an affidavit and supporting documents, it’s a good source for finding your debtor’s financial information (hint: look for Motions your debtor has filed in other cases).
These can be set for “review” hearings, so, if a debtor is proposing something that doesn’t work long-term, ask the Court to set a review hearing in 6 months.

Here’s why I like Slow Pay Motions: They indicate a debtor trying to get a handle on their finances–they are making a proposal to pay you back and are trying to do something they can realistically afford.

Plus, within the spectrum of forcing you to accept payments, these Motions are better than the alternative (i.e. a Bankruptcy filing).

Proposed Tennessee Legislation Seeks to Alter Liability for Attorney’s Fees and Expenses in Litigation

An interesting bill, House Bill 1156, Senate Bill 651, is making its way through the Tennessee legislature, which will radically shift the risks of litigation by awarding litigation costs and “reasonable and necessary attorney fees” to the prevailing party, even where no agreement to pay such fees exists between the parties. Today, the legislation passed in the House Judiciary Subcommittee–unanimously.

This would be very different than the current law. As it is now, a party cannot recover attorney fees in Tennessee litigation unless they have a written agreement granting the right to recover those fees or unless they sue under a statute that expressly provides those rights. Absent either of those, a creditor can’t recover attorney fees.

This bill, which would be the new Tenn. Code Ann. 20-12-119, awards “reasonable and necessary attorneys fees” (as well as other litigation expenses) in civil cases to the “prevailing party” (as long as the party did not hire its counsel on a contingency fee basis). The text says that the “judge shall” grant this recovery–it’s not discretionary.

The ability to recover attorneys fees is a big deal in litigation, as the potential of paying for the other side’s lawyers is often a detriment to prolonged fights. On creditor actions, especially smaller claims, creditors often base their decision on whether to sue on whether they can recover their expenses. Without that, the cost of suing on debts and small claims doesn’t make sense.

This proposed legislation is certainly a drastic change to Tennessee practice and, as much as I think it would benefit creditors in general, I question the fairness of the law. Frankly, litigation isn’t always “Right Versus Wrong,” and matters sometimes get tried not because of stubbornness, but because there is no clear answer to an issue. To award fees in such disputes without any such agreement seems unduly punitive.

Five Mistakes Judgment Debtors Make in Response to a Collections Lawsuit

I had a court docket today in Davidson County (Nashville) General Sessions Court. In “small claims court,” collections are generally limited to $25,000.00 (with some exceptions). Many defendants don’t have a lawyer, and many make the same mistakes. Here are ones I see the most:

Mistake # 5: Not showing up. Dealing with legal issues is stressful, but, if you don’t show up, you allow the other side resolve it for you–and that’s not going to be in your favor. Come to court to meet and work something out. Or call…

Mistake # 4: But don’t wait until too late to call. Don’t wait until the night before or the morning of the court appearance to call, because, by that time, it’s harder to work things out. Call and be prepared to discuss specifics; know how much you can pay per month, know what kind of agreement you’d like to make to get it resolved.

Mistake # 3: Not hiring an attorney (where you have good defenses), or, conversely, hiring the wrong attorney (where you’re spending good money for no results).

Mistake # 2: Agreeing to a resolution you can’t afford. Don’t get me wrong, as a creditor’s rights attorney, I want as much of your money as you’ll agree to pay. But, at the same time, I want you to actually pay the money. Don’t agree to $500 a month if you can’t pay it.

Mistake # 1: Silence is the worst mode of communication. Something will go wrong–it always does. Illness, job loss, something. If I’m expecting a payment from you and you can’t make it, call me. If a payment deadline comes and passes without a call, I assume you’re paying somebody else, and it’s time for me to start judgment enforcement.

It stinks to be sued, and, from my clients’ perspective, it stinks to not be paid. The process can be easier, though, and the above are easy ways to reach a resolution.

When Enforcing Judgments, Look Back Four Years for Potential Fraudulent Transfers in Tennessee

From time to time, the judgment enforcement process hits a brick wall because your debtor is “judgment proof,” which means that they don’t own anything: no car, no property, and no cash.

This can be a disconnect from reality, especially where the debtor lives in a big house with a fancy car parked in the driveway. How can this guy be broke?

That’s when I investigate fraudulent transfers, which are transfers out of the debtor’s name to a third party—a wife, parent, or child—to keep the assets out of the creditor’s reach. This is more common than you’d think.

Tennessee has adopted the Uniform Fraudulent Transfer Act, at Tenn. Code Ann. § 66-3-301 et seq. That Act provides for a number of “badges of fraud,” such as transfers to an “insider”, transfers that render the person insolvent, transfers where equal value is not given for an asset, or transfers with “actual intent” to hinder or defraud creditors.

“Actual intent” means what someone is “thinking,” which, you can guess, is hard to prove. As a result, the Act provides some common ways to prove intent, at Tenn. Code Ann. § 66-3-305(b). These include:

The debtor retained possession of the asset;
The transfer was kept a secret;
Prior to the transfer, the debtor had been sued or threatened with suit;
The transfer was to an insider;
No equivalent value was provided; and
The transfer was made prior to a substantial debt was incurred.

Under Tennessee law, a creditor can attack fraudulent transfers from up to four (4) years preceding your lawsuit.

Long story short, when enforcing a judgment in Tennessee, don’t just examine what your debtor owns, but look also to what he used to own. Then, look back at least 4 years, because, in Tennessee, fraudulent transfers can be attacked for a long time.

Transfers of the big assets (like real property) are all of public record, so your cause of action can easily be discovered, if you know to look for it.

Speaking at Landlord-Tenant Law Seminar on April 28, 2011

On April 28, 2011, I’ll be speaking at the 8th Annual Landlord-Tenant Law-With a View from the Bench on Litigation Seminar in Nashville, presented by Sterling Education Services.

I’ll be teaching the afternoon session, on topics covering Collections, Enforcement of Judgment, Dealing with Tenant Bankruptcy, and Legal Ethics in Landlord-Tenant law.

Here’s the full agenda. This seminar gets lawyers continuing legal education credits, but it’s also designed for rental agents, landlords, and other non-lawyers who want to learn the legal process.

Lawyers Don’t Get Paid by the Word, but They Sometimes Act Like They Do

This falls more into the category of “effective lawyering” than it does collections, but this article is a good lesson about the importance of reading your court’s rules of procedure and persuasive writing.

In the article, the Seventh Circuit Court of Appeals comes close to dismissing a party’s appeal based only on the blatant non-compliance with the Court’s 14,000 word limit in briefs, but then notes that the appeal has no merit (so side-steps that issue). The brief apparently used 18,000 words in unpersuasively making its point.

But, the decision has a lesson: know your court’s rules of procedure, and follow those rules.

And, aside from that, lawyers need to understand that less is often more. There’s a tendency to cite every case, refute every argument, and rehash every point. In our 30 second soundbite world, that’s not how we–and I include Judges here–process information. We look for summary statements, bullet points, and clear, concise statements.

And don’t get me started on those lawyers who just stand up and start reading from their briefs.

Invoice Hint: Do your Homework Before Extending Credit

As a collections attorney, bad invoices drive me crazy. A collection lawsuit is only as good as the paper it’s enforcing, so when invoices have serious defects, it’s hard to do a good job, because the other side has easy defenses.

A common issue is an invoice (or credit application) that doesn’t get the borrower’s name right. For instance, the document doesn’t clearly identify and completely name the party buying goods. As easy as it sounds, this happens all the time, particularly when dealing with corporate entities.

As an example, let’s say your invoice is simply addressed to “Smith Contractors.” Is that an “Inc.,” a “LLC,” or “John Smith d/b/a Smith Contractors”? This is critical in determining who you sue. Even if the borrower writes down “Smith Contractors, Inc.,” there might not actually be a valid company set up under that name.

Here’s an easy fix: check out your prospective borrower’s corporate status on the Tennessee Secretary of State website, by using the “Business Information Search.” You should be able to locate any valid corporate entity, and, if you can’t find it, then you should ask more questions about the legal status or name of your borrower.

Trust me, it’s better to ask those questions on the front end, before you extend the credit. If you wait to do this after the account is in default, it is probably too late.

Borrower’s Attack on Foreclosure Process May be Barred by Detainer/Eviction Proceedings

Across the country, lenders are fighting claims from borrowers that the lender’s foreclosure on real property was defective. In response, courts will sometimes entertain an examination of the specifics of the foreclosure. Regardless of the outcome, the lender is invariably faced with delay in obtaining a deficiency judgment or the costs of litigating these issues.

On January 31, 2011, the Tennessee Court of Appeals issued a decision finding that such claims by a borrower will not be considered, where the lender has filed a post-foreclosure unlawful detainer warrant in General Sessions Court and obtained an eviction judgment. If the homeowner does not raise the defective foreclosure in the General Sessions Court, then the decision is “res judicata” on any subsequent action.

It’s a a quick and cheap way to clear title on property. Also, you serve the detainer warrant by nailing it to the door of the property — no chasing the elusive occupants around the world trying to get service.

Cite: Robert E. Davis, et. al, v. Crawford L. Williams, et. al, No. E2010-01139-COA-R3-CV (Tenn. Ct. Apps. Jan. 31, 2011).

Wall Street Journal Reviews Weapons for Creditors in “The Battle Against Slow Payers”

The Wall Street Journal has an article that is right up my alley, “The Battle Against Slow Payers.”

The article reviews a variety of new online applications and services, such as: automated invoice dunning software; pay-in-advance invoice escrow services; and affordable business information and credit bureau searches.

While I don’t have first-hand experience with any of the vendors mentioned in the article, the collection issues that these services try to prevent are very real, and, even without using these services, small businesses should keep the underlying issues in mind at all times:

Clear, Well-Documented Invoices: Always have invoices that are clear and simple where they need to be (due date, amount owed), but have sufficient detail where necessary (project description, services provided).

Keep Track of Your Unpaid Invoices: Don’t wait until the 90 or 120 day mark to send reminders. By that time, it may be too late: either the customer no longer needs your credit/services, or you’ve fully performed your end of the deal. In collections, the squeaky wheel really does get the grease.

Get Advance Payment Where Possible: If it’s a new relationship, ask for a retainer for all or part of your services. Don’t worry about offending the new business; if it’s a legit company, they’ll understand.

Do Your Homework Before Lending Time or Money: If this economy has taught us anything, it’s that there is no obligation to lend money or sell products to unfamiliar customers. If the customer doesn’t have a track record with you, check out their business history, ask for referrals, or, if no such information exists, sell on a cash basis only. Otherwise, you’re assuming all the risk.

Doing all of the above is time-consuming and sometimes expensive, and, in the end, nothing can guarantee that all your accounts will get paid. But, if a little advance research vets just one or two of the bad apples, then it will all be worth it.

An unpaid invoice plus a collection lawyer costs far more than the services described in the article.