Yesterday, Minnesota Attorney General Lori Swanson sued Midland Funding, one of the nation’s largest debt-buyers, over robo-signed affidavits. Here’s more from the press release:
The Attorney General alleges that Midland aggressively filed thousands of lawsuits against individual citizens for collection of old, purchased debt, often supporting those lawsuits with “robo-signed” affidavits generated at its St. Cloud offices. Midland filed the robo-signed affidavits in state courts in Minnesota and around the country to obtain judgments against individual citizens.
“Robo-signing” is the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process. In recent months, the mortgage industry has come under intense national scrutiny for supporting mortgage foreclosures in court with “robo-signed” affidavits. Like the mortgage industry, some debt buyers, including Midland, have used false, robo-signed affidavits to support their debt collections lawsuits.
Although robo-signing is widespread in the debt collection business, all of the attention until now has been focused on mortgage lenders’ use of the practice. It will be interesting to see whether Midland capitulates early or whether they engage Swanson’s office in lengthy and drawn-out litigation.
Press Release | Office of the Minnesota Attorney General | March 28, 2011
A ruling in a class-action lawsuit in Ohio casts serious doubts about affidavits being used all over the country to support debt buyer collection lawsuits. According to an excellent story by Larry P. Vellequette in the Toledo (OH) Blade, U.S. District Court Judge David Katz ruled that the commonly used affidavit submitted by one of the nation’s biggest debt collectors was not legal. Judge Katz issued an injunction against the company, creating doubt about collection lawsuits across the nation that used the same affidavits in support of debt collection suits. In his ruling, Judge Katz found that clerks at Midland Credit had, as a practice, signed affidavits stating that the individual clerk had “personal knowledge” of the debt being collected when they did not possess such knowledge. The person that signed the affidavit, upon which the company’s collection lawsuits are based, was “an entirely random act” based solely on when the affidavit came off the company’s printer. Because the affidavits were false, the judge ruled that the company’s collection process was not legal. The story quotes a strong passage from Judge Katz’s decision: “[i]t is unclear to this court why such a patently false affidavit would be the standard form used at a business that specialized in the legal ramifications of debt collection.”
Based on what I’ve seen and suspected in my time as a collection attorney, the practices discussed in Judge Katz’s ruling are pretty common across the whole debt collection industry. Hundreds, if not thousands, of these boilerplate affidavits are generated each day, and I have strong doubts about whether the people signing them have “personal knowledge” about all, or any, of the accounts. Yet courts across the country continue to accept the testimony in these questionable affidavits as gospel. Perhaps Judge Katz’s ruling is the start of a new trend of courts reviewing these boilerplate affidavits with more skepticism.
Asset Acceptance, Unifund CCR Partners, and LVNV Funding are three of the biggest debt buyers in the collection industry. Other debt buyers include Midland Funding, Cavalry Portfolio, Crown Asset Management, and Palisades. A debt buyer is a company that purchases delinquent consumer accounts from original creditors such as Capital One, HSBC, Discover, and Wells Fargo. The debt buyer purchases the accounts for a tiny fraction of the balance and then attempts to collect the entire balance from the consumer. Debt buyers file thousands of lawsuits and obtain thousands of default judgments each month. They are then free to garnish people’s bank accounts and wages, and as a result, collect millions of dollars. This leads to huge profits, even in the current economy.
But debt buyers have a dirty little secret: they can almost never prove their case in court. Because they didn’t originate the debt, they are at the mercy of the original creditor to provide them with the documents, such as credit applications and billing statements, to prove their case. Sometimes the original creditor refuses or is unable to provide the debt buyer with these critical documents. Debt buyers also have a difficult time providing thorough documentation of their purchase of the debt. Because of this, most debt buyer lawsuits can be successfully challenged. But because the majority of people don’t respond to debt buyer lawsuits, the debt buyers obtain thousands of judgments by default. In most states, this means that debt buyers obtain the judgments without having to provide any proof.
If you have been sued by a debt buyer, you should answer the lawsuit and force the debt buyer to prove their case. If disputed properly, most debt buyer lawsuits can be defeated. Even if they can’t be defeated outright, challenging them can lead to good deals in the form of settlements.
If you live in Minnesota and want help answering a debt collection lawsuit, feel free to contact me by using the contact form in the upper right corner of this page. I offer a number of flexible representation options, so even if you can only afford to pay a few hundred dollars, I might be able to help you.