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Unrecorded Debt Assignments Remain Legally Binding - What This Means for New York Debtors

The Validity of Debt Assignments Without Court Recording

The Case of Musah v Houslanger & Associates

In a pivotal ruling, the Federal District Court for the Southern District of New York provided clarity on the legality of judgment assignments to debt buyers in the case of Musah v Houslanger & Associates, PLLC[1] . The court affirmed that such an assignment remains valid, even if not recorded with the court as stipulated by CPLR 5019(c).

FDCPA Claims and the Court's Response

Mr. Musah's lawsuit against Houslanger claimed multiple violations of the Fair Debt Collection Practices Act (FDCPA) based on the alleged improper restraint of his bank account. His claims hinged on the belief that the failure to record the judgment's assignment rendered it and subsequent collection actions invalid. Houslanger countered with a motion to dismiss, leading to a significant judicial interpretation of the FDCPA in relation to CPLR § 5019(c).

Mr. Musah sued Houslanger in federal court, alleging that Houslanger committed the following violations of the Fair Debt Collection Practices Act ("FDCPA"):

  • Falsely represented it had the right to restrain Musah's account on behalf of Palisades, violating 1692e;
  • Falsely represented the debt had been assigned to Palisades, violating 1692e(2)(A);
  • Sent out a debt collection communication without conducting a meaningful review of the court file, violating 1692e(3);
  • Took action that cannot legally be taken by restraining an account on behalf of an entity that did not have a right to the debt, violating 1692e(5),
  • Used a false representation to obtain information by serving Musah's bank with an information subpoena, violating 1692e(10);
  • Engaged in unfair and unconscionable means to collect a debt by taking steps to restrain Musah's bank account without confirming that Palisades had a right to the funds, violating 1692f; and,
  • Took nonjudicial action to effect dispossession of funds absent a present right to do so by causing the Musah's account to be restrained, violating 1692f(6).

Understanding CPLR § 5019(c)

The statute outlines the procedure for a new judgment creditor to file their authority to enforce a judgment. However, the court cited Law Research Serv., Inc. v. Martin Lutz Appellate Printers, Inc., stating the purpose of CPLR § 5019(c) is to protect the assignee, not the debtor, emphasizing that an unrecorded assignment does not invalidate the transfer or enforcement of the judgment.

CPLR § 5019(c) states as follows:

Change in Judgment Creditor A person other than the party recovering a judgment who becomes entitled to enforce it, shall file in the office of the clerk of the court in which the judgment was entered or, in the case of a judgment of a court other than the supreme, county or a family court which has been docketed by the clerk of the county in which it was entered, in the office of such county clerk, a copy of the instrument on which his authority is based, acknowledged in the form required to entitle a deed to be recorded or, if his authority is based on a court order, a certified copy of the order. Upon such filing, the clerk shall make an appropriate entry on his docket of the judgment.

Precedents and Misinterpretations

The plaintiff cited Tri-City Roofers, Inc. v. Northeastern Indus. Park to support his case, which dealt with payments made to the incorrect creditor due to a lack of notice about the assignment. The court ruled this case irrelevant, except to underscore that CPLR § 5019(c)'s primary goal is to safeguard the assignee's interests.

The Court's Conclusion

With the Second Circuit's precedent in Law Research standing firm, the court dismissed the notion that an assignment must be filed to be effective. This ruling underlines the federal courts' adherence to the principle that assignees can enforce judgments within the Second Circuit, regardless of recording.

Implications for Debt Buyers and Collectors

This decision presents a cautionary note for debtors and a relief for debt buyers. It clarifies that debt buyers do not lose their right to collect on a debt due to non-recording of the assignment, reducing the risk of FDCPA violations on this basis.

Moving Forward After Debt Assignment

For debtors, this case serves as a reminder to remain vigilant about the status of their debts and the entities that hold them. It is a green light for collectors to enforce judgments even without the procedural recording, though they must still navigate other legal and ethical considerations.

Need Legal Assistance?

If you're facing issues with debt collection or have concerns about a judgment assigned to a debt buyer, our firm is ready to assist. We can help you understand your rights and the best course of action in light of recent court decisions.

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[1] Musah v Houslanger & Associates, PLLC, 2012 WL 5835293 [SDNY November 28, 2012] No. 12-cv-3207 (RWS).