Assignment – How A Debt Can Lose Its Soul
By: William James Campbell
In the years of practicing debt collection law I have discovered a couple things. First, there are circumstances where a debtor should simply stop paying their debts. Second, consumer debts change hands so often it’s hard to keep track of who actually owns it. Debt buyers have become a major player in the debt collection industry, and here in California they make money off of consumer ignorance. Serious legal problems exist as soon as an original creditor sells its debts to a debt buyer.
So how does it work? Well, creditors have debts on their books that they deem uncollectable or that they just don’t want to mess with anymore. These debts are placed in a bundle and sold in bulk to debt buyers. Inside these bundles are debts that are in fact owed along with zombie debt (debt that has been settled but the creditor still shows as being due). The debt buyer purchases these debts for pennies on the dollar. This process is called assignment. It’s a legal mechanism in which the creditor assigns all their rights as a creditor to the debt buyer. Often times the debt will be re-sold from debt buyer to debt buyer.
The main problem with this process is both a legal one and a practical one. I will start with the practical problem. When a debt is assigned from one party to another there is a document that is signed by both parties attesting to the assignment of rights. As soon as this is done the assignor, or the party selling the debt, wants nothing more to do with that assigned debt. They have no intention of sending a representative to testify about the assignment if the owner of the debt decides to sue the debtor. Sometimes, the debt has been sold so many times it’s just not possible to get all the necessary witnesses required to properly prove assignment of the debt. This is a problem….now the law.
“The burden of proving an assignment falls upon the party asserting rights there under. In an action on an assignee to enforce an assigned right, the evidence must not only be sufficient to establish the fact of assignment when that fact is in issue, but the measure of sufficiency requires that the evidence of assignment be clear and positive to protect an obligor from any further claim by the primary oblige.” (Cockerell v. Title Insurance & Trust Co., (1954) 42 Cal.2d 284, 292). “The assignment must describe the subject matter of the assignment with sufficient particularity to identify the rights assigned.” (Mission Valley East, Inc. v. County of Kern, (1981) 120 Cal.App.3d 89, 96).
So how does the party asserting assignment rights in a debt collection action do so? They have to produce the signed assignment agreements starting from the original creditor all the way up to the current owner of the debt and they must find a way to get those documents into evidence. If the debt buyer cannot do this they lose. “Lacking the proper allegations of written authority, agency or assignment, a non-owner plaintiff lacks standing to sue. Without standing there is no actual or justifiable controversy and courts will not entertain such cases.” (3 Witkin Cal. Procedure 3rd Edition 1985, Action §44 PP. 70-72; Allen v. Wright, (1984) 468 U.S. 737).
So why doesn’t the current owner of the debt simply get those documents and introduce them into evidence? Because they can’t. The California Evidence Code requires a proper foundation before evidence can be admitted. (Cal. Evid. Code §§403, 405). In the case of the assignment agreements; the party asserting the assignment rights will have to authenticate every assignment agreement. (Cal. Evid. Code §1401). California Evidence Code §1400 states, “Authentication of a writing means (a) the introduction of evidence sufficient to sustain a finding that it is the writing that the proponent of the evidence claims it is or (b) the establishment of such fact by any other means provided by law.” This must be done through California Evidence Code §1413 which states a “writing may be authenticated by anyone who saw the writing made or executed, including the subscribing witness.”
Now it’s a simple math problem. You take the practical problem I spoke about and you add the legal problem and you have a credit card lawsuit in which the debtor will come out victorious. The even bigger problem for the debt buyer is if they lose they will probably be on the hook for attorney’s fees and costs depending on whether there is an attorney’s fee provision in the original contract between the creditor and the debtor.
If you have a debt buyer that is collecting a debt from you, be very happy. First, you should be able to negotiate a really low settlement of the debt if you are so inclined. Second, debt buyers are notorious for violating both the FDCPA and the Rosenthal Act here in California in which case you might be able to get some money out of them. Finally, if they do sue then chances are pretty good that you will either get the case dismissed or secure a win in court.