Debt Buyers Must Prove They Own the Debt

Written by Charleston Bankruptcy Lawyer, Russell A. DeMott

Debt buyers claim they have the right to collect for the original creditor.  But do they?

You couldn’t pay that credit card debt a few years ago, and so you stopped paying it.  MasterCard called for a while, but the calls eventually stopped.  Now, Shark Collections called and they say they bought the debt from Snake Collections who, in turn, bought it from MasterCard. Can Shark Collections sue you?

The answer is yes.  But as the Missouri Supreme Court held just last week, the debt buyer plaintiff (Shark) must prove it owns the debt and that the accounting (what they say you owe) is correct.  That sounds like it’s not a big deal, but it really is.

In CACH, LLC v Askew, CACH, the debt buyer, could not authenticate or, “lay a proper foundation” for the debt it claimed Jon Askew owed.  Jon’s attorney’s response:  Prove it!  And they couldn’t.  The Court said that “every link in the chain between the party to which the debt was originally owed and the party trying to collect the debt must be proven by competent evidence in order to demonstrate standing.”  “Standing” means the right to sue–come concrete stake in the outcome of the case.  I can’t sue for my neighbor, and CACH could not sue on the Providian debt unless it proved (1) that, through all the “links” in the debt buying chains, CACH was really the company who was assigned the debt and (2) that the balance was correct.

It’s like chain of title in real estate

This concept is a really old one. If you want to buy a piece of real estate from a guy named Ron Jones, you hire a lawyer to search Ron’s title. Your lawyer will look for a variety of things, but among those things, he’s going to make darned sure Ron owns that property!  If Ron doesn’t own it, he can’t sell it to you. So he’ll search the “chain of title” and see that Ron bought it from Sue in 2006 and Sue bought it from Joe in 1975 and Joe bought it from Mary in 1960–and so on.

It’s the same with debt. Owning the debt–the right to collect–is a property right. And to sue as a result of owning that right, the plaintiff (the creditor) must prove that it owns the debt and be able to prove exactly what it owns (how much is owed).  To do that, it must “lay a foundation” to authenticate the accounting system of the sellers of the debt–those upstream creditors in the chain of title, so to speak.

Wouldn’t it be silly if….

Wouldn’t it be silly if the court accepted testimony like this:  “Mr. Askew owes us $5,936.10 plus interest because it’s that way in our computer system.”  That doesn’t mean anything!

What was in the previous creditor’s system? How does it work?  How are the records kept?  And what about the creditor prior to that?  And what about the original creditor?  If we don’t know the answers to these questions, how to we know the accounting is what the plaintiff creditor says it is? How do we know the plaintiff has standing to sue?

Postscript:

First, the Missouri Supreme Court needs a nod for recognizing that the courts are not an extension of the debt collection industry. We are a nation of laws, not men–and particularly not  powerful corporations. The Missouri Supreme Court upheld very basic, fundamental principles of law and applied them to this case. That may sound like something simple, but increasingly it’s not. Corporate America has figured out that it’s easier to change the judges than to change the laws, and the independence of the judiciary has been under heavy assault over the last couple of decades. (Ask anyone in Mississippi about this if you doubt it, and that state is just one example.) State Supreme Courts which follow the law and refuse to bow down to powerful corporate interests are increasingly rare, and justices who have the character to stand up for what’s right often do so at great peril in states where judges must run for election. Money works wonders in those races, and Corporate America knows that well.

Second, thanks to St. Louis, Missouri bankruptcy lawyer Wendell Sherk for calling this opinion to my attention.  If you are in St. Louis and need help with your finances (or Sharks and Snakes!), call Wendell at (314) 871-3400.

Third, check out this Wall Street Journal video below and article by clicking here.