Mass-produced collection lawsuits overwhelming New York courts

July 14, 2010 by Todd Murray · Leave a Comment 

When I saw the headline for this recent New York Times story, I assumed it was just another story about the massive increase in debt collection lawsuits in a down economy. There have been dozens of similar stories in numerous media outlets over the last couple of years. But the article does contain a startling revelation:

As millions of Americans have fallen behind on paying their bills, debt collection law firms have been clogging courtrooms with lawsuits seeking repayment. Few have been as prolific as Cohen & Slamowitz, a Woodbury, N.Y., firm that has specialized in debt collection for nearly two decades. The firm has been filing roughly 80,000 lawsuits a year. With just 14 lawyers on staff, that works out to more than 5,700 cases per lawyer.

These figures are astounding for a couple of reasons. First, the collection industry–which consists of hundreds of law firms, including many that file a similar number of lawsuits as Cohen & Slamowitz–repeatedly accuses consumer lawyers of being overly litigious. The Times’ data exposes the obvious hypocrisy of this accusation.

And then there’s this: if you take the Times’ math a little further, each of the 14 lawyers at Cohen & Slamowitz are filing just under 500 lawsuits each month. And I’m willing to bet that Mr. Cohen and Mr. Slamowitz, as the founding partners of the firm, are not doing the mundane work of signing debt collection lawsuits. The senior partners at the collection law firm I used to work at certainly didn’t. So the 500 lawsuits per-lawyer-per-month estimate is probably an understatement.

Why is this such a big deal? First, mass-producing so many lawsuits will inevitably result in mistakes–such as suing the wrong person or demanding the wrong amount of money. Second, and perhaps more importantly, both the FDCPA and most states’ rules of civil procedure seem to require that lawyers ensure that the lawsuits they are filing are accurate and based on competent evidence. The FDCPA calls this “meaningful review”. Based on the absurdly high number of lawsuits they’re filing each month, it’s hard to imagine a Cohen & Slamowitz lawyer doing very much meaningful review.

Although the Times’ story features one New York judge that has held the debt collectors to the existing standard of meaningful review, the majority of courts seem willing to look the other way. So it’s unlikely that we’ll see a reduction in mass-produced lawsuits anytime soon.

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.

Automated Debt-Collection Lawsuits Engulf Courts | New York Times | July 12, 2010

New study: banks are not acting rationally by foreclosing

July 8, 2009 by Todd Murray · Leave a Comment 

A few weeks ago, I had an argument with a friend about the current foreclosure crisis. Despite all the news stories to the contrary, this person did not believe that the foreclosure problem was very widespread. His reasoning was that banks are rational economic actors and that its clearly in their best economic interest to modify mortgages rather than foreclosing on them. He thought that the media had overblown the problem, and that the reality was that banks were modifying most mortgages and only foreclosing on those that had absolutely no chance of being repaid. I disagreed, and shared the frustrating experiences of some of my clients who had been given the modification run-around by their lenders for months only to ultimately be served with a foreclosure notice.

According to a new study conducted by Allan M. White, there is strong data to support my position. Mr. White is a professor at Valparaiso Law School in Indiana. He analyzed nearly 3.5 million sub-prime mortgages in securitization pools overseen by Wells Fargo. The loans were written between 2005 and 2007 and contained mortgages handled by the nations five largest mortgage servicers. Its important to note that Mr. White’s data did not contain any prime mortgages. 

Mr. White found that mortgage modifications peaked in February 2009, and have declined every month since. Meanwhile, foreclosures have risen steadily during the same time period for the same pool of mortgages. And Mr. White’s study sheds some light on just how much money banks lose when they foreclose on a mortgage. According to his data, the average loan was approximately $223,000. The foreclosed properties, on average, sold for $79,000 at foreclosure sale. In other words, each foreclosure studied by Mr. White  resulted in an average loss of $144,000 for the lender. According to Mr. White’s study, foreclosures in June 2009 alone resulted in approximately $4.59 billion dollars in losses for the lenders. These losses are even more staggering when compared to the losses incurred by banks for mortgage modifications. In June 2009, the banks losses resulting from mortgage modifications was approximately $45 million. 

“There is 100 times as much money lost in foreclosure sales as there was in writing down balances in modifications,” Mr. White said. “That is not rational economic behavior.”

Take that, friend.

New York Times: So Many Foreclosures, So Little Logic.

Bank accused of improperly steering African-Americans into subprime loans

June 9, 2009 by Todd Murray · Leave a Comment 

wfThe New York Times has an article detailing the alleged practices used by Wells Fargo to steer African-Americans into sub-prime mortgages. The article relies on the affidavit testimony of two former Wells Fargo loan officers from an ongoing discrimination lawsuit between the City of Baltimore and Wells Fargo. According to the affidavits quoted in the article, Wells Fargo employees commonly referred to sub-prime loans as “ghetto loans” and blacks were referred to as “mud people” and other derogatory racial slurs. The employees’ testimony also details the unfair and deceptive tactics used by Wells Fargo to place African-American loan applicants into sub-prime loans, even when the prospective borrower could have qualified for a prime loan. There is further testimony about how Wells Fargo targeted African-American church leaders to help steer their congregations to Wells Fargo mortgages and how Wells Fargo recruited African-American loan officers specifically to work with potential African-American borrowers. If you’re interested in reading the full text of the affidavits, the Consumerist has a link to them here. 

Many observers have long suspected that minorities were unfairly targeted by sub-prime lenders. The affidavit testimony of these two former Wells Fargo employees strongly corroborates this suspicion. The alleged practices of Wells Fargo are appalling, and if proven to be true, Wells Fargo deserves the maximum penalty available.

(photo: Steve Rhodes)

What does your credit card company know about you?

May 15, 2009 by Todd Murray · Leave a Comment 

The New York Times has a fascinating (and somewhat scary) article about the data mining techniques that many credit card companies use to calculate risk. Credit card companies collect vast amounts of data about their customers’ backgrounds and purchases and use it to determine which customers are likely to pay their balances and which are likely to default. The article reveals that the Capital One “card lab” is really just “an experiment” designed to collect data about customers’ values and choices and use it to assess risk.

394781835_9b18ba40611The author also attended a training session for new collection employees at one major credit card issuer. It seems credit card companies are taking a kindler and gentler approach when it comes to debt collection. Not necessarily because its the right thing to do, but because research has shown that empathizing with (and occasionally manipulating) customers increases the likelihood of payment. 

The article is somewhat long, but it is well-worth your time.

(photo: kalandrakas)