The battle on the collection field has always been fought with the sword and the shield. It is a game of offense and defense. When choosing a law firm or collection agency to represent you, it is important to find one that maximizes recovery with the “sword” while at the same time protects you with its “shield” from unwanted liability for alleged debt collection violations.
For these reasons, many landlords are now choosing law firms over collection agencies because they are much more likely to have developed a sophisticated risk management model that will minimize risk in an area of law that is fraught with litigation. In addition, a law firm generally provides avenues for collection not available to collection agencies, such as routine bank levies and wage garnishments, liens on real and personal property, and the seizure of automobiles. In the eyes of a debtor, a law firm is more intimidating than a collection agency such that a law firm naturally produces better results for clients.
In order to maximize recovery dollars in this economy, it is crucial to utilize formal judicial enforcement techniques. Following an eviction and after a money judgment is obtained, your former tenant can also be served with an order to appear in court for a judgment debtor examination hearing if no assets are readily available for collection. At this hearing, the defendant is required to answer questions, under penalty of perjury, concerning his or her financial status and ability to pay. Through this examination, we typically find bank accounts, places of employment, and attachable personal property. In the event that the defendant does not appear in court for an examination hearing, a bench warrant may issue for the debtor’s arrest. If your current collection company does not use judicial enforcement techniques, you are leaving money on the table.
Your former tenant is also responsible for the court costs and sheriff’s fees incurred by the plaintiff in pursuing these collection activities and, in California, your judgment accrues interest at 10% per year until paid in full. The judgment is enforceable for ten years and can be renewed prior to expiration provided that you have attempted diligently to recover your money. Be certain that your collection agency or law firm assertively pursues the interest and costs of collection to which you are entitled.
From a risk management perspective, federal and California law are decisively slanted in favor of debtors. The restrictions placed upon collection agencies and collection law firms are extensive. It is a highly technical area of law. Recent federal legislation and case law have created a legal environment that has become even more burdensome to collection companies.
Two primary bodies of law govern collection and credit reporting issues at the federal level: The Fair Debt Collection Practices Act (FDCPA) and The Fair Credit Reporting Act (FCRA). Penalties for violation of these Acts are severe. In addition to actual damages, a plaintiff may be awarded statutory damages in the amount of $1,000 for each violation, punitive damages, court costs, and attorneys’ fees. Each state also has its own credit and collection laws (usually mirroring the FDCPA and FCRA to some degree) which can provide additional remedies for recovery. Moreover, if a collection attorney or collection agency is found to have engaged in an unfair business practice, a creditor can be ordered to disgorge profits. Awards based upon unfair business practices can be substantial.
It is important to note that, as a landlord and creditor, you may be held liable for the acts of your collection company. The nature of claims against collection agents, and ultimately against creditors, generally fall into three categories: statutory violations, claims for negligence, and intentional torts. The FDCPA contains many common sense provisions (no deception, no abuse, and no harassment). However, the FDCPA contains some counterintuitive provisions that are particularly easy to violate if you are not an expert in the field. Violations of these technical provisions are penalized to the tune of $1,000 per violation. For example, if your collection agent continues to send form letters to a debtor who has properly asserted his or her statutory right that communication be discontinued, you can be held liable for $1,000 per letter.
Almost every year, Congress makes some changes to the FDCPA or FCRA, or a court takes on a peculiar interpretation of the legislation that causes a landslide of litigation. For this reason, it is unusual for attorneys to “dabble” in collections. Collection law is a very specialized area of law that requires a firm regularly engaged in that area.
Many claims arise from more than oversight, imprecision, or failure to stay abreast of legislative changes and recent rulings. Slander, libel, conversion, fraud, and infliction of emotional distress fall within this category. These claims often arise as a result of harassing actions by the agency or firm (repeated calls after permissible hours of contact, for instance), blatant violations of FDCPA guidelines (revealing the existence of a debt to a third parties), and deceit (threatening to take action that cannot legally be taken.)
As to the likelihood of claims, there may not be an industry that lends itself more to the incidence of risk. The number of boutique firms specializing in consumer and debtor representation has risen throughout the country. These boutique firms want to sue you. Attorneys General in many states have taken more active roles in pursuing and punishing rogue collectors. The directive from Congress, state legislatures, and the courts has never been stronger: impermissible collection activities will not be tolerated.
For these reasons, it is essential that you choose your collection partner wisely.
Our Creditors’ Rights Practice Group specializes in debt collection. We have recovered over $100 milion dollars for our clients. If you would like us to begin a collection matter for you, simply call 800.575.1770 or go to www.kts-law.com and click on “start a case.”
Written by D. Patrick O’Laughlin, Partner