Will You Buy Me? I Have A Debt Collection Lawsuit That I Just Discovered And I'm In Escrow! Notes From The Trenches of AgentQ

Introduction

This is an article – nope it’s actually a story that happened in 2015 with one of my buyers that I want to share with other Realtors. I’m not a lawyer and this isn’t legal advice. It’s merely sharing my experience from the trenches of AgentQ.

Never push the panic button. Always let your buyer know that you have everything under control and that you are going to stand by them. If you show fear, then you will make them give up on the transaction.

There are so many issues that come up in a transaction so be ready to resolve them. What it may appear to be just may not if you take a closer look at it. Be ready at the drop of a dime so you can close your transactions.

Understanding Statute of Limitations

If your buyer or seller has unpaid debt read this paragraph because it may apply to them. Please pay attention to the bold text. A statute of limitations is a time limit that a creditor has to file a lawsuit against you. It runs from approximately the last time you made a payment. In California, the statute of limitations on a credit card debt is four years (California Code of Civil Procedure § 337), and the statute of limitations on an auto loan or store card (like a Sears or Macy's card) is four years (California Commercial Code § 2725).

If it has been more than four years since you paid your credit card debt or car payment, the statute of limitations on that debt has expired. The statute of limitations is an absolute defense -- the court must dismiss a case if the debt is past the statute of limitations. However, you will have the burden of proof for the defense. Any payment, no matter how small, can reset the statute of limitations. To be safe, NEVER make a payment if you want to assert the statute of limitations as a defense. If you believe that the you were sued on a debt after the statute of limitations expired ask your Realtor to refer you to an attorney if you can't work it out.  

The Judgment Story

I had a buyer who was in the middle of escrow. He was going to close in two weeks. He called with the news that he had been served with notice to appear in court for a debt that had gone to collection many years ago. The hearing was for a judgment that had already been taken against him. Apparently, the creditor had taken his judgment unknowingly to him, but was never able to collect on the judgment because they served the wrong person and actually put the wrong person on the substitution of proof of service. Good for him!

He expressed to me that he had moved from his residence and had never been served. This is extremely important if you buyer had this situation. The process server did in fact serve someone but it wasn’t my buyer. The process server made numerous attempts to serve my buyer and served the residents with a substitution of service. Now because the residents who lived at his old residence didn’t speak English, they had no idea what was going on and accepted the service because they couldn’t speak English.

Of course, the process server assumed that my buyer had avoided service because there was a proof of service - substitution in the court docket. Their attorney took my buyer's default and entered a default judgment against him and he allegedly had no idea. The default judgment was taken May 2008. The creditor’s attorney finally figured out my buyer had not lived at this address for numerous years, but the creditor's attorney had been moving the court litigating, against the wrong defendant from February 2008 through October 2014 until they finally figured it out. Funny huh? I will say this again - not all attorneys are created equal so select your attorney wisely when you hire him or her. It wasn't until 2015 when my buyer was in escrow that the creditor's attorney set aside and vacate the default judgment that was entered against my buyer. The creditor's attorney then attempted to re-serve my buyer.

The creditor’s attorney found my buyer and asked him to accept service by Notice And Acknowledgement of Receipt - Civil [Judicial Council Form POS15]. Blank form https://www.courts.ca.gov/documents/pos015.pdf - essentially by mail so they could start all over. The creditor's attorney found my buyer by running his credit report - inquiry. Keeping it real, now if you were a buyer in escrow about to purchase your dream home, would you accept service and start the lawsuit all over again so you can't purchase your house? We pay for our mistakes and that was a big one - actually 7 years. That's why it is imperative that we as Realtors take a good look at the circumstances before we tell our buyers or sellers that the transaction is dead. It may initially appear that way on its face, but until you truly look at the situation never give up or push that panic button.

**You can find sample docs on any superior court docket and download your client's document if you want to take a look at the history to make sure there have been no mistakes and you can also buy them at Scrib if you want to see some samples motions to set aside and vacate default and default judgment. *** Every circumstance may be different, you just have to look at it. 

Defenses That You Can Use

These are defenses that you can use. However, you should consult with an attorney for legal advice. 

Defense 1: Identity Theft or Mistaken Identity. These defenses apply when you believe that the debt for which you are being sued is not your debt. Identity theft occurs when somebody steals your name and personal information and opens up credit accounts in your name. Mistaken identity occurs when you have been confused with somebody else who has a similar name or other identifying information. Remember that the burden of proof is on the plaintiff to establish that you made or authorized each and every charge. You do not have to prove that the debt is not yours. NEVER agree to a settlement if you are a victim of identity theft or mistaken identity. This is a very strong defense. 

Defense 2: Statute of Limitations. A statute of limitations is a time limit that a creditor has to file a lawsuit against you. It runs from approximately the last time you made a payment. In California, the statute of limitations on a credit card debt is four years (California Code of Civil Procedure § 337), and the statute of limitations on an auto loan or store card (like a Sears or Macy's card) is four years (California Commercial Code § 2725). If it has been more than four years since you paid your credit card debt or car payment, the statute of limitations on that debt has expired. The statute of limitations is an absolute defense -- the court must dismiss a case if the debt is past the statute of limitations. However, you will have the burden of proof for the defense. Any payment, no matter how small, can reset the statute of limitations. To be safe, NEVER make a payment if you want to assert the statute of limitations as a defense. This is what occurred with my buyer. 

Defense 3: You Were Only an Authorized User. This defense may apply if you are being sued for a credit card that you shared with someone else. The defense hinges on the difference between a cosigner and an authorized user. If another person gave you permission to use his or her card, and you never agreed to be responsible for paying for that card, you were an authorized user. As an authorized user, you cannot be held responsible for that credit card debt. However, if you signed a credit card agreement in which you agreed to be jointly responsible with someone else for a credit card, you are a cosigner, and this defense does not apply to you. As a cosigner, you can be held responsible for the debt, even if none of the charges were yours.

Defense 4: No Cosigner Notice. This defense may apply if you are being sued for an  auto loan or other consumer loan that you cosigned for someone else. The defense only applies if you cosigned a loan for someone else, who is not your spouse, and you did not receive any of the money, property, or services which were the subject of, or purchased with, the loan proceeds. The defense may apply no matter how you are designated on the loan documents (i.e. buyer, co-buyer, borrower, co-borrower, etc.). The key fact for this defense, on which you will have the burden of proof, is that you did not directly benefit from the loan proceeds.  

Defense 5: Payment. If you have paid all or a part of the debt, and you believe you have not been credited for the payment, you can raise the defense of payment. You will have the burden of proof that you paid all or part of the debt.

 Defense 6: Dispute the Amount of the Debt. If you believe that the amount of the debt is incorrect, you have the right to dispute it. Remember that the plaintiff has the burden to prove that you owe the amount for which you have been sued. The plaintiff must prove that the principal, interest, collection costs, and attorneys fees are all correct, agreed to in your contract, and lawfully charged. You always have the right to insist that the plaintiff come up with your original contract, account statements, and in some cases even purchase receipts, to prove the amount of the debt. See Federal Debt Collection Practice Act aka FDCPA.

 Defense 7: No Business Relationship with the Plaintiff (Lack of Assignment). This is a defense that applies when the plaintiff is a debt buyer, not your original creditor. Because you never signed a contract directly with the debt buyer, you have the right to challenge the debt buyer's right to sue you (also known as "standing"). The plaintiff will not be able to prevail unless it can prove to the court that it owns your debt. To do this, the debt buyer will have to produce a contract of sale (also known as an "assignment") that mentions your debt specifically. If the debt buyer bought your debt from another debt buyer, it has to provide a chain of assignments going all the way back to the original creditor. If the debt buyer cannot or will not provide these documents, the court must dismiss the case.

 Defense 8: Bankruptcy. If you previously declared bankruptcy, and the debt for which you are being sued was discharged as part of that bankruptcy proceeding, the debt is no longer legally collectible from you. Bankruptcy is an absolute defense to a debt collection lawsuit.

 Defense 9: Foreign Language Contract Rule. This is a special defense that applies if you negotiated the agreement sued on in one of the following languages: Spanish, Chinese, Tagalog, Vietnamese, or Korean. In California, any business that negotiates with consumers either orally or in writing on one of these non-English languages, must provide the consumer a fully completed copy of the contract in that language. Therefore, if you negotiated the purchase of a vehicle with the auto dealer in Spanish, the auto dealer was required to provide you a fully completed copy of the contract in Spanish. Failure to provide a foreign language contract makes the agreement unenforceable. This is a strong defense, but you will have the burden of proof to show that the transaction was negotiated in one of the covered non-English languages. If you are being sued for transaction that was negotiated in Spanish, Chinese, Tagalog, Vietnamese, or Korean, and you were not provided a fully completed copy of the agreement in that language that may be an issue. Check with an attorney.

 Defense 10: Inaccurate Credit Disclosures This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless the auto dealer where you purchased the vehicle accurately made all the required credit disclosures. Because auto dealers rarely, if ever, accurately make all of the required credit disclosures, this is a very strong defense that should be investigated in every auto deficiency case. If you are being sued for an auto loan deficiency and the auto dealer where you purchased the vehicle arranged the financing for you obtain a copy of it. Contact an attorney.

 Defense 11: One Document Rule This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless the entire agreement between you and the auto dealer where you purchased the vehicle was contained in one document. In California, this document is usually yellow and nearly three pages in length (printed on both sides). The entire agreement between you and the auto dealer regarding the total cost and payment terms must be contained in this single document. This means that there can be no side agreements, either orally or in writing.

 Despite this one document rule, auto dealers often make side agreements regarding the total cost and payment terms when selling vehicles to consumers. One common side agreement concerns the amount and timing of the down-payment. It is quite common for auto dealers to allow the down-payment to be made in installments over a short period of time, ranging from a few days to a month or more. In some cases, the long yellow sales contract states that a large cash down-payment was made on the date of the sale, when in fact there was a side agreement (not contained in the contract) which allowed the down-payment to be made in one or more payments. Auto dealers may also offer to "hold" post-dated checks for the remaining down-payment. Some auto dealers have even used a separate "check hold agreement" for these side agreements. Another less often used method for "assisting" the buyer purchase a vehicle is accomplished by increasing the sales price for the vehicle by the same amount of the requested down-payment, then the auto dealers makes the down-payment for the buyer. When this method is used, the sales contract is made to look like a down-payment was made, when in fact, it was not.

Both of these vehicle sales methods illustrate side agreements which violate the one document rule. While this defense is often difficult to prove, and you will have the burden of proof, this is a very strong defense if it can be proven. If you are being sued for an auto loan and you had one of these side agreements with the auto dealer who arranged the vehicle loan for you obtain a copy. Contact an attorney if you are not savvy enough to resolve it yourself. 

 Defense 12: Defective Notice of Intent. This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless you were sent a notice of the lender's intent to sell the vehicle.

The Notice of Intent must contain several required disclosures – more than a dozen in all. Among the required disclosures, the lender must disclose your right to reinstate the agreement upon the payment of the loan delinquency and repossession costs. In order to satisfy this required disclosure, the lender must separately disclose all additional amounts that may become due under the loan agreement during the 15 day reinstatement period. Many lenders fail to make these additional disclosures. In order to prove this defense you will need a copy of the Notice of Intent that was sent to you shortly after your vehicle was repossessed. This is a strong defense that should be investigated in every auto deficiency case. If you are being sued for an auto loan deficiency and you have a copy of the contract and Notice of Intent from the lender, contact an attorney if you are not savvy enough to resolve it yourself. 

Defense 13: Collateral Was Not Sold at a Commercially Reasonable Price. This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless it obtains a fair price for the car (a fair price is known as a "commercially reasonable price"). The burden of proof is on the bank to establish that it sold the car at a commercially reasonable price.

Defense 14: Improper Service (No Personal Jurisdiction). The defense of improper service applies if (1) you never received the Summons and Complaint at all; or (2) you received the Summons and Complaint too late to file an Answer. This is what occurred with my buyer. 

 Under California law, a process server must try to make personal service before they use substitute service. If you are served by substitute service there should be a declaration of due diligence and mailing. Personal service occurs when the process server delivers the Summons and Complaint to you in person. Substitute service occurs when the process server leaves one copy of the Summons at your home (or place of business) with a roommate, relative, or other responsible party (known as a "person of suitable age and discretion") AND mails a second copy of the Summons to you at your last known address (or place of business).

If a process server makes three unsuccessful attempts at personal service, he or she is allowed to use substitute conspicuous service. California law does not authorize service of the Summons by slipping one copy of the Summons under your door or attaching it to the door.

Here are some common examples of improper service:

• Leaving the Summons with your neighbor, who lives in a different apartment.
• Sending the Summons to an old address where you no longer live.
• Throwing the Summons on the floor in the lobby of your apartment building.
• Throwing the Summons in your yard.
• Attaching the Summons to your front door.
• Sending the Summons to you by mail only.

You cannot get a case dismissed for improper service, but it is grounds for vacating a default if you were unable to file an Answer timely.

Conclusion

The creditor’s attorney filed a motion to set aside and vacate the default judgment. What’s the problem here? Remember the statute of limitations is four years. The creditor’s attorney moved the court from February 2008 to April 2015 that’s 7 years. My buyer's case was dismissed with prejudice.  

We closed the transaction right on time! I gave him the keys to his home the same day the deed was recorded.

There are happy buyer endings.