The media has brought attention to debt collection firms that have failed to deliver proper notice of debt collection actions to debtors. The result of these investigations highlights the judgments entered without cause and disciplinary actions against the firms for failing to deliver solid service of the court documents. Not much is mentioned about the cost to the creditors who entrusted their claims and potential recovery to the firm. We want you to know what it costs you if the service of your debt collection papers is not solid.
Throughout the life of a debt collection claim, you may be required to give notice. This can include notice of default, notice of non-payment, notice of pendency, notice under mechanics lien, notice that a debt collection claim has been filed or, that a judgment has been entered.
The notice, although often a technicality, can make or break your debt collection claim. If done poorly, it will affect your ability to collect or retain monies collected in a case.
Here are some examples of how shoddy notice can affect your wallet.
A Case Study
A New York collection attorney filed a case to enforce a judgment obtained in Chicago, Illinois against a New York company and its guarantor. The Illinois judgment appeared valid. The firm filed an action to file the judgment in New York, served the defendants, and enforced the judgment. Enforcing the judgment, the law firm restrained the bank account of the personal guarantor, freezing $180,000.
In this case, we represented the judgment debtors. Researching the validity of service, where the parties were serviced with notice of the debt collection action, we found that the parties were served with the New York action at an old address.
Although the address was good when the Illinois judgment was obtained, the defendants, now judgment debtors, had moved a good 18 months before the NY case was filed. In fact, the debtors updated their address with the Department of State’s division of corporations, putting the public on notice of the move way before the New York case was started. In this case, the creditor’s attorney failed to do his due diligence by verifying the current addresses of the parties, instead merely focusing on the information supplied in the Illinois case.
In this case, the shoddy service caused the judgment and the freeze on the bank account to be lifted, allowing the debtors to vacate the judgment, keep their money, and do with it as they pleased.
Having not been paid almost a million dollars, a steel fabricator could no longer afford to supply goods on the job. Rather than send formal notice as required under the contract, he walked off the job. Having failed to substantiate valid service of the notice, he lost his case and could never make up the lost million.
Another example: Our service client was not getting paid for its maintenance of a building. The aged receivable was more than the client cared to carry and wanted to terminate the service contract coming up for renewal in 40 days. Notice of termination was due 30 days in advance. Although we had not started an action based upon non-payment of the service contract, the client made sure to send the notice of termination as required by the contract and ensured receipt. Here the cost of doing business, at least, as of today, is an aged receivable which he will sue on. He did not want to continue increasing the cost of doing business with more bad debt and made sure to give ”solid service” of the notice to terminate.
The service of the debt collection notice needs to be solid. Anything short of that can cause you to lose your rights to get paid, no matter where in the debt collection process.
Contact Frank, Frank, Goldstein & Nager for more information or for a consultation to discuss your business’ needs.