Like people who invest in penny stocks, Junk Debt Buyers are investing pennies on the dollar in accounts that the banks no longer want, and hoping to turn the proverbial "straw into gold." The accounts are sold by the banks pursuant to contracts called the "Purchase and Sale Agreement" or the "Forward Flow Agreement" or some similar terminology. The document frequently has broad disclaimers, such as that the account are being sold "as is", that the money may not be owed, that the accounts may have already been settled, that the balances listed are only "approximate", that little or no documentation exists, and that the price being paid reflects the quality of the accounts being sold. If you don't believe me, look at this agreement between FIA Card Service and CACH, LLC, and read sections 1.8, 1.10, 1.19 (purchase price is 1.79 cents on the dollar), 8.1, 9.4, Exhibit C, and Exhibit E. See here: https://www.documentcloud.org/documents/329733-fia-to-cach-forward-flow.html
UNDERSTAND THE LITIGATION BUSINESS MODEL
Junk Debt Buyers rely on a volume litigation business model. They flood the courts with hundreds of thousands of cases, knowing that the vast majority of cases will result in a default judgment. They bank on the fact that most people will not show up to defend themselves. For example, in Maryland, a single lawyer had over 11,000 open debt buyer cases in Maryland during the calendar year of 2012. It is not unusual for a single lawyer to file hundreds of lawsuits in a single day. If you happen to be the 1 in 10 person who contests the case, you are on your way to winning.
READ THE COMPLAINT AND ALL SUPPORTING DOCUMENTATION VERY CAREFULLY
The most important thing a lawyer or self represented litigant can do is to read the paperwork very closely. Common problems identified by a close reading include: the case is barred by the statute of limitations, there is no proof that the specific individual account was sold, there is no contract attached, the "Bill of Sale" is not between the alleged seller and the debt buyer, and many others. To understand just how bad it gets, read the complaint filed by Wells Fargo against one of its debt buyers called United Credit Recoveries, in which Wells Fargo alleges that the defendant manufactured fraudulent bank affidavits of sale using the old "cut and paste" trick.
FOCUS ON THE PROOF OF EACH LINK IN THE CHAIN OF ASSIGNMENT
Often the JDB that sues has allegedly purchased the account from a prior JDB. Just like the original sale between the bank and JDB #1, there is a Purchase and Sale Agreement between each subsequent JDB buyer and seller, and accompanying Bills of Sale. If you are sued by JDB #2, then that JDB must prove not only what it purchased from JDB #1, but also what JDB #1 allegedly purchased from the original bank.
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