photo: moofbong via Flickr

The New York Times calls attention to a cousin of foreclosure fraud. Vulture funds buy defaulted credit card debt and use robo-signers and other fraudulent tactics to collect. I have a story about this.

I’m thinking it was in 2002 that a woman came to see me about filing bankruptcy. Her ex-husband had been stealing from his business, and when he got caught, his partner threw him out, leaving him no money. He immediately took out a credit card and signed his wife’s name on the application. She divorced him, and he was ordered to pay all of his bills, including credit cards. He filed bankruptcy just before he was trundled off to jail.

Debt Collector 1 started calling and writing the ex-wife in 2002. That’s when she came to see me. I didn’t think she owed this debt, so I wrote the company demanding a copy of the application showing that she was liable on the account. They went away. We were able to compromise with her other creditors, so she didn’t have to file.

A year later, Debt Collector 2 wrote and called. I wrote demanding the paperwork. They disappeared. A few weeks later, a law firm in another Tennessee city filed suit in Nashville. I wrote, demanding a copy of the paperwork. They asked for a continuance twice, and then dismissed the case, saying they would refile when they found the paperwork.

Each year, for the next 3 years, a new debt collector would call, I would write with copies of all prior correspondence and the dismissal, and they disappeared.  . . .

In the fifth year, when Debt Collector 6 called, I wrote and told it that the statute of limitations had expired, and that if I heard from it again, I would file suit. I wrote that letter to Debt Collector 7 the next year, and as far as I know, that one took, because she didn’t hear from them after that.

It turns out that banks charge off defaulted credit card debt and sell it, and it isn’t at all rare that buyers cannot produce paperwork showing that they are entitled to be paid. I’m not the only one who figured this out.

“I’ve lost four and I’ve taken about 5,000 cases,” said Jerry Jarzombek, a consumer lawyer in Fort Worth. “If the case goes to trial, I say to the judge, ‘Your honor, imagine if someone came in here to give eyewitness testimony in a traffic accident case and they didn’t actually see the crash. They just read about it somewhere. Well, this is the same thing.’ The debt buyers don’t know anything about the debt. They just read about it.”

And here’s another example, In re Kendall, 380 B.R. 37, (Bankr. N.D. OK 2007). The Debtor in a Chapter 13 case objected to a proof of claim filed by B-Real, LLC. B-Real said it owned a credit card debt. The Debtor demanded proof of ownership. B-Real produced a bill of sale from Chase Manhattan Bank of 2,875 accounts, but couldn’t produce the exhibit that listed the accounts. At trial, the Debtor testified that he had a credit card with Providian Bank, and that the account was sold to Chase Manhattan Bank. He disputed the amount of the debt. The Court found that B-Real did not prove that it owned the debt, and denied its proof of claim.

As with mortgage foreclosure fraud, there isn’t any real question about the existence of the debt. Most people actually got money from their lenders, and owe something. The problem is that people don’t know to whom they owe the money. Furthermore, many of these companies bought the claims for next to nothing. They may very well offer to settle for a small percentage in cash, which opens the door to a vicious fraud. They might collect something and resell the debt to another company, or they might claim your payment was an acknowledgment of the debt which extends the statute of limitations.

The one thing missing from all the discussions about this scam and foreclosure fraud is the unwillingness of Judges in these courts to protect their jurisdiction. Lawyers and their clients lie to their faces, and Judges do nothing. Until Judges start holding liars in contempt, imposing fines and jail time, whether it’s lying about a $3,400 credit card debt or a $340,000 mortgage, this isn’t going to get better.