May 7, 2014

NY chief judge proposes debt lawsuit reforms

Jonathan Lippman, chief judge of the state of New York, recently proposed reforms to debt collection lawsuits, 100,000 of which are filed against residents of the state each year.

Current challenges
The New York Unified Court System noted the various problems that surround these collection efforts, including submitting unreviewed or robo-signed documents. The lawsuits are sometimes brought forth by third-party entities that buy portfolios of delinquent credit card debt, as well as by original creditors.

The defendants often have a tough time determining the legitimacy of the supposed debts. In addition, Judge Lippman said 98 percent of these people targeted by lawsuits do not have legal representation, and more than half of the suits result in default judgments, according to The Legislative Gazette.

These individuals could find their bank accounts frozen or their wages garnished, even though they might never have been served with papers in the first place, The New York Times reported.

This result shows the attorneys who brought the case have won a default judgment.

Many attorneys will claim that they provided the defendants with this needed documentation, and then when these individuals don't show up to court, the professionals bringing suit will win a default judgment, the media outlet reported.

Lippman has proposed rules to institute fairness in the process, according to the news source. This will help the legitimate debt buyers who are already following business practices that adhere to these rules.

Proposed reforms
The State of New York's Unified Court System has proposed specific changes to ensure that defendants undergo a fair legal process and that the courts do not hand out default judgments that are unwarranted. The system stated that market experts have until May 30 to comment on the suggested changes, which include:

1) Obligating creditors to supply written affidavits when applying for default judgments. The creditors would be required to provide certain documents to establish that there is enough proof that the ownership of debt is valid. The Unified Court System has proposed this specific change to get rid of affidavit "robosigning." In addition, they aim to ensure that default judgments have a proper basis.

2) Providing all courts in the system with forms currently used by the New York City Civil Court, such as a form Order to Show Cause to Vacate a Default Judgment and another document that contains standard defenses.

3) Additional reforms that would prevent courts from providing default judgments after papers have been served to an improper address. The proposal would create new guidelines for courts outside New York City, obligating creditors to give an additional notice of a consumer credit so that the legal entities could then send them to the supposed debtor.

As a result of all the changes that could happen to debt collection in New York, financial institutions that want to get involved in loan sales might want to be careful when selecting a debt broker. The price of valid debt should rise as the courts are cleared of inappropriate suits.

Garnet Capital Advisors has developed a 42-step process to ensure that loan sales are performed correctly.