Judge's gavelFederal Circuit Court Judge Denny Chin just issued an opinion in a consumer class action case that should send chills down the spines of debt collectors, perhaps including foreclosure-mill law firms and their process servers, nationwide.

Judge Chin decided that plaintiffs alleged enough information about the debt collectors in this case -- a law firm, a process-serving company and a debt-buying company -- to sue them for being a criminal enterprise under the Racketeer Influenced Corrupt Organization (RICO) law. Judge Chin also allowed claims under the Fair Debt Collection Practices Act.

Why should other companies in and related to the debt-collection business be so nervous?

Well, Monique Sykes and the other plaintiffs claim that the defendants' business model is as follows:
  • Buy debt with little documentation that the debt is accurate.
  • File lawsuits claiming personal knowledge of the debt but using robo-signed affidavits instead.
  • Deliberately fail to tell the "debtor" that the lawsuit is pending (a practice called "sewer service").
  • Get a "default" judgment against the debtor when she fails to show up in court to defend herself.
  • Enforce the judgment, including by freezing the debtor's bank account.
And remember, JPMorgan Chase (JPM) whistle-blower Linda Almonte said Chase's records about its customers' debts were often false, and that executives routinely robo-signed debt-related documents. Also, the The New York Times has more generally reported that inaccurate debt records and robo-signed documents are common. Similarly, sewer service is a common enough practice to have a name. So it's hard to imagine that the three businesses at the center of this case are the only ones that have this business model and thus are vulnerable to RICO charges.

Nothing to Worry About? Not Necessarily

Perhaps even more significant, the information about the Law Offices of David J. Stern that has come out in sworn testimony of former employees suggests that its efforts on the behalf of its bank clients is strikingly similar. The testimony claims sewer service was rampant and robo-signing was a standard operating procedure. Moreover, anecdotal evidence suggests the information about homeowners' debts is routinely wrong, particularly after the homeowners go into default (often at their mortgage-servicers' instruction).

In fact, one of the cases pending against Stern is a class action that includes RICO claims against Stern and its bank clients for their practices in getting foreclosure judgments. A motion to dismiss is pending in that case, which the homeowner plaintiffs have to respond to tomorrow. A decision isn't expected for awhile. A recent decision from the U.S. District Court for the Eastern District of New York dismissing a similar suit on the grounds that foreclosure decisions, done by state judges, can't be appealed to federal court, suggests Stern and the others have nothing worry about.

However, Judge Chin's decision yesterday -- and he now sits on the court that the Eastern District case has been appealed to -- addressed the same doctrine and related arguments, and found they didn't apply to the RICO claims. Moreover, unlike the Eastern District case and similar to Judge Chin's, the plaintiffs are claiming sewer service was used, which is another factor in Judge Chin's analysis. So perhaps the defense isn't a slam dunk for Stern after all.

In short, one powerful judge gave hope yesterday to borrowers of all types that creditors must have their facts straight and play by the rules if they want courts to force the debtors to pay. How many borrowers are ultimately helped remains to be seen.

Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

What is Inflation?

Why do prices go up?

View Course »

Add a Comment

*0 / 3000 Character Maximum

15 Comments

Filter by:
Gean

What can I do about a collection agency that calls constantly? The Profolio Collection Agency lost in court. One, the debt was 8-years old with a statute of limitation of 3-years and the case was thrown out of court for the age of the debt and their lawyer failed to appear on the court date. IS THERE A CLASS ACTION AGAINST THIS sort of thing? I told the company many time where documentation of the adjudication can be obtained. The "manager" I presume; told me it doesn't matter what the court decided, I still owe and they will continue to call. What to do???

January 22 2011 at 3:25 PM Report abuse rate up rate down Reply
julienash123

No. You are under no obligation to remain with your current lender. But it is a good idea to let them know what you're planning to do so they'll offer you their best rate. If you need quotes from other companies search "123 Mortgage Refinance" they found me the lowest refinance rate i could get.

January 11 2011 at 5:27 AM Report abuse rate up rate down Reply
wstrvlr

Plain & simple; they are crooks. Solution: Send them to prison, seize their assets & auction them all. It's high time judges start paying attention to how Judge Chin is dealing with these hucksters.

Some of the biggest criminals hide under the guise of "lawyer" & then become elected to positions that make them representatives, senators, congressmen/women.

ALL lobbists should be be made illegal & the companies that employee them should be put out of business & their executives sent to prison. All their assets seized & sold at auctions as well.

Greed & corruption are eating from the inside out destroying this once great nation. What once was a nation of & for the people has become a government bought & paid off by big business at all levels.

January 06 2011 at 9:09 AM Report abuse +1 rate up rate down Reply
Blessed One X 20

A quesion for anyone with knowledge: One of those being sued is Wells Fargo Bank. They are the ones calling me 8-10 times a day, hanging up on me, calling within less than an hour after we make a payment which is on so called interest AFTER our car was paid off in Sept 2010. They threaten us, (usually me, I answer the phone) and I am disabled which stress makes my illnesses worse. Is anyone here an atty. with knowledge about us being able to do anything? Calls start at 8:01 am and go on till 9 Pm. I was told by a woman named 'Nicole' that since "we owe the debt they can call 100 times a day if they want to until we pay up." As I said, this includes hang up calls. Can anyone help? Thanks!

January 06 2011 at 8:52 AM Report abuse rate up rate down Reply
Blessed One X 20

Everything described in that 'Business Model' above happened to me last year and we had a heck of a time getting our bank account un-frozen. Is there anything at this point we can do to this so called "lawyer's office"? Yep he said he was an attorney but yet showed collections on his 'letter head' also. This so called atty. is located in VA Beach VA - perhaps someone here has dealt with him. We did send money for the "debt" that turns out wasn't even a real debt. Then I have one now calling 8-10 times a day, even one time last week 45 minutes after I made a payment!!! They call and hang up several times a day. I emailed a Comsumer Protection Atty. who turned out to be in PA who told me that I had NO case against that one..so it is OKAY to call someone 6-10 times a day the day after a payment is made, or the SAME day because they happen to be one of the so called "big banks"? I'd love to have a lawyer help me but I can't find one. Are they on the side of the law breakers??

January 06 2011 at 8:32 AM Report abuse rate up rate down Reply
HELLO JAMES

Debt is debt by any other name. Banks sell bad debt en masse for pennies on the dollar to debt collectors without any documentation such as the orginal (or a copy)of the credit card application. All the collector has is a name, address, telephone number and the amount aledgedly owed. I'm not a lawyer but is this enough to file a lawsuit or garnish a salary? If a collector calls and makes the threats collectors make demand a copy of something itemizing the debt along with something with your signature on it. Follow up the telephone demand with a letter demanding the same things and a demand to cease and desist backed up with a threat to contact the appropriate federal agency (FTC). If enough of us do this a whole new can of worms might be opened up. And a lot of us may be able to get off the credit card hook.

January 05 2011 at 10:19 PM Report abuse rate up rate down Reply
1 reply to HELLO JAMES's comment
Blessed One X 20

Hello James - in both my cases, neither is for Credit Card debt, but these so called bill collectors are putting me through the wringer. I had one lawyer tell me next time this bank calls me after 3 or 4 hang up calls to tell them they are violating the FDCPA laws. When I told one that last night, he hung up on me. Again. The so called lawyer that froze our bank account last year - that was over a hospital bill that we ARE wotking WITH the hospital to resolve, yet they sold the debt to that loser anyway. WHEN Is it time for us to have some REAL consumer rights? If you Hello James, are on that Credit Card hook, I DO hope you get off, the way these people treat us with their dirty tactics, yet it is us who pays emotionally also. It does make one a wreck to get bunches of hang up calls a day from a so called creditor!

January 06 2011 at 8:38 AM Report abuse rate up rate down Reply
blhomesales

As a former process server, I am appalled at this. I have no idea what sewer service is, but any process server who does not follow the prescribed civil code, should be stripped of their license. Also (in California anyway) every registered process server is required to post a bond. A claim can be made against this bond if they do something that is not correct. The plaintiffs should hit the bonds as well.

January 05 2011 at 10:16 PM Report abuse rate up rate down Reply
none

Hey! here is another crooked RICO debt collection company..PORTNOFF LAW ASSOCIATES....they serve no other purpose except to STEAL PEOPLES MONEY AND PROPERTY! There is no reason for them to exist. In PA if you owe even $1 in taxes....they tack on hundreds even THOUSANDS of dollars in "attorney fees" and make you pay it or they sheriff sale your house! Total crooks!

January 05 2011 at 7:23 PM Report abuse rate up rate down Reply
none

HERE IS ANOTHER LARGE SCALE RICO DEBT COLLECTION ENTERPRISES! DEBT-EASE OUT OF TEXAS. THEY BUY THOUSANDS OF REAL ESTATE TAX LIEN'S THAT ARE EVEN A DAY LATE...LIENS AS SMALL AS $1 THEN THEY CHARGE YOU $200 + $75 ++++ PER EXTRA LETTER TO COLLECT IT OTHERWISE THEY WILL TAKE YOUR HOUSE! THEY ONLY ACCEPT CASH WON'T TAKE EVEN TAKE A CREDIT CARD OR CHECK. AND THEY LOBIED TO HAVE THE LAW CREATED TO BEGIN WITH!

January 05 2011 at 7:19 PM Report abuse +1 rate up rate down Reply
Wayne

It behoves the mind that organized corruption can hit this level with little or no attention. Where are our law makers and those who are to serve and protect? If it was not for Abigail most of us who are watching this closely would not be so informed. I for one applaud Abigail for her diligence and expertise in this matter.

January 05 2011 at 12:24 PM Report abuse rate up rate down Reply