Why do debt buyers face serious challenges when their ownership of the debt is disputed? It’s all about the assignment. In the law, an assignment is the transfer of legal rights by contract. In the case of debt buyers, what’s transferred is the legal right to collect a debt. Debt buyers purchase defaulted debts from original creditors such as Chase Bank, HSBC, Bank of America or Sears. The debt buyers purchase the defaulted debts in bundles, for pennies on the dollar.
The amount of back-up paperwork regarding each individual debt that comes with the purchase varies. Generally speaking, the more paperwork, the more it costs the debt buyer. And since the debt buyer profit model is based on keeping costs low, the debt buyer may purchase no back-up information at all, or may purchase only the right to information on a limited number of accounts as needed in the future.
If the debt buyer tries to collect the debt and is unsuccessful, it may sell the debt to another debt buyer.
The problems with proof often start with the original creditor. In recent times, lenders seem to be getting wise, but in the past, consumer creditors rarely kept copies of consumer credit applications with the consumer’s signature on them, or account statements sent to the consumer over the life of the account. Lenders also did not keep track of what contracts were in effect at what point in time, or when contract revisions were mailed to consumers.
Even if the debt buyer can come up with some of these proof documents, they face admissibility problems under the rules of evidence because the documents were not created by the debt buyer but by the original creditor.
And then there’s proof of the assignment of the debt itself. The assignment is the document that gives the debt buyer the legal right to attempt to collect the debt. Without it, the debt buyer does not have the legal right, or "standing," to bring a lawsuit in court. Since the debts are sold from the original creditor in a bundle, there is often only a generic proof of sale document or a document tiled “assignment” that will refer to an attachment listing the accounts assigned, but the attachment is rarely attached. As a result, the debt buyer often cannot prove ownership of the debt. If the debt gets sold more than once, the problem is multiplied, because each link in the chain of ownership must be proven to the court.
The assignment of a debt is fertile ground for challenging a debt collector’s legal right to bring a case against you in court. A good debt defense firm can craft a solid argument for you, even if you think you might owe the debt, forcing the debt collector to prove its case against you. It is your right under our judicial system to force the debt collector to prove its case.
By the way, back-dating assignment documents and creating assignments for litigation only when challenged, in our opinion, amounts to serious legal delinquencies subject to the reach of the Fair Debt Collection Practices Act.