The Uncollectible Judgment - Thinking outside the box

While today’s fractured economy has produced more judgments than ever before, a higher number of those judgments are uncollectible. Just when is a judgment uncollectible? That line is blurred with the right set of circumstances and some thinking ‘outside the box’.

As a case in point, several years ago I received a judgment from a physician who had been duped out of her savings by a boyfriend. A wage garnishment was served upon the boyfriend’s shell corporation. The corporation indicated the debtor was not employed. I had solid information about the debtor’s employment, so I sued the corporation. Having successfully prevailed on the creditor’s suit, judgment was now entered against the corporation.

I subsequently discovered that the corporation was entangled in federal litigation over patent rights in which it was the plaintiff. The defendant was a high-profile software company. I immediately filed a lien in the case; however a review of the case file was disappointing. I did not think the debtor would prevail. In fact, it appeared the case was frivolous. As a lien holder, I would receive monies only if the debtor was triumphant. This was not going to happen.

It soon became apparent to me that the debtor firm conducted no actual business other than frivolous litigation on its one (nearly defunct) patent.The debtor nonetheless was able to retain a major law firm on a contingency. This firm was aggressively pursuing the deep-pocket defendant, causing that firm to incur substantial legal fees. I put in a call to the attorney for the software company and inquired if the client might be interested in putting an end to the litigation. An idea was floated to him. I would go back to court and obtain an order transferring all of the debtor’s patent rights to me in order to satisfy the judgment. Once the order was obtained, the judgment was for sale – for the full amount of the judgment. As the new owner of the patent, the software company would be able to shut down the federal litigation. There was silence on the other end until it finally hit him what I was suggesting. “Oh…. I see what you’re doing….” He indicated the idea ‘had merit’ but he would need to speak with his client.

The client gave the go-ahead. I filed and successfully prevailed on the necessary motions to seize the debtor’s patent which was the core of the federal lawsuit. As it turned out, however, somebody beat the software firm to the punch. The victory in court smoked out the law firm for the debtor. To protect its interest in the case, the firm satisfied their client’s judgment.

So what was the outcome of the patent litigation? As I correctly surmised, the debtor could not prove its case in court. Moreover, it was ordered to pay the defendant’s legal fees. Unfortunately, the debtor’s law firm was out hundreds of hours on their contingency agreement….. as well as the $35,000 they paid to me.

Ramona Featherby is a judgment recovery specialist in San Diego, California and past President of the California Association of Judgment Professionals.

Copyright 2011, Ramona Featherby

JUDGMENT COLLECTION

Outsourcing Your Money Judgment - Part III

While using a judgment collection specialist can be a wise choice, caution is advised. In many states, California included, there is no professional vetting system. Anybody can hang their shingle out and become a 'recovery specialist'. The industry, unfortunately, is plagued by individuals who, attracted by online 'business opportunities', view this industry as a get-rich-quick-scheme. So how can you vet a judgment collector? There are a number of questions you can ask. The least important question -- and usually the first one asked -- is "How much do you charge?" Judgment collectors do not 'charge' for their services. In fact, they are providing no legal services. A recovery specialist purchases all of your rights, title and interest in the judgment and then enforces that judgment - on his/her own behalf - not yours. The financial arrangement will depend on the judgment and the debtor's circumstances. It is usually necessary to provide a copy of the judgment for a quote.

During this time of economic downturn, there is a surplus of uncollected judgments and a shortage of (qualified) judgment recovery specialists. Don't be surprised if you find a judgment collector you 'connect' with, only to find that they have declined to accept your judgment for collection. When you speak with a judgment collector, be organized, to the point. You must not only have a copy of your judgment, you should have all relevant information from your court file, such as the complaint, proof of service, and documents evidencing steps taken to collect, such as writs of execution and motions filed.

Here are the top questions to ask a judgment recovery specialist:

1. Do you subscribe to either IRB or Accurint?

Accurint and IRB are essentially the same product, marketed to different end users. While there are dozens and dozens of data suppliers, this powerful skiptrace and asset searching database, in my opinion, is by far the best. It not only can lead to locating debtors and their assets, it shows connections to people, companies and relationships. Both IRB and Accurint tightly restrict their data to approved businesses. If a collector does not subscribe to IRB or Accurint, they either cannot qualify, do not know about the database, or cannot afford it. In any case, these are bad signs.

2. Do you have legal access to DMV information? (In California ask, "Do you have a "Commercial Requester Account Approval" from the DMV?") The ability to have legal access to State motor vehicle records is important for service of process as well as for asset location.

3. How long have you been in business? Look for someone in business at least five years.

4. Have you, as the assignee of record, ever prevailed in a bankruptcy proceeding by obtaining an order for non-dischargability of your debt? Many judgment collectors are 'all bark and no bite' and will close a file upon the receipt of a Notice of Automatic Stay. If someone has litigated and prevailed in federal court to save a debt from a bankruptcy discharge, this is a major plus. It indicates a tenacious individual with resources.

5. Which legal databases do you subscribe to? It is essential to have 24/7 access to either Westlaw or Lexis. Without access to case law, treatises and other vital information, you are handicapped from the start. A 'warrior' must have the right 'weapons'.

6. Are you a member of a professional organization? Have you ever served as an officer of this organization? While this is not an essential, it is helpful to be 'plugged in' and network with other judgment collectors. Service as an officer indicates another level of professionalism and credibility.

7. Do you have a source to pull credit reports? If they are not authorized to pull credit, cross them off your list.

8. Are you full time? Many 'recovery specialists' hold full-time jobs and 'moonlight' on the side collecting judgments. Look for full-time professionals.

You can relax the above guidelines a bit if your judgment is a small claims case; many collectors starting out are so eager for business, they will do a competent job, even if they are 'cutting their teeth' on your case. Also, you may have trouble finding an experienced, successful recovery specialist, as they can have their pick of the lot and usually turn down smaller judgments.

The majority of court judgments go uncollected. Do not join the mass of creditors who are forced to 'write off' bad debt. Using the above guidelines, you are one step closer to determining if you should use a judgment recovery specialist. If this is your decision, use the eight questions above to narrow your list of candidates.

At times there can be a distinct advantage to letting a judgment 'age'. All too often, however, creditors wait too long to pursue collection. If a fraudulent transfer has occurred, each state has a statute of limitations. The window of opportunity to recover a transfer may have passed. If your debtor has moved outside the state, if you have waited too long, the other state may bar your efforts to 'domesticate' the judgment. [Nevada and Arizona are notoriously unfriendly to creditors and will bar domestication after a short period of time.] Bear in mind too that all civil money judgments expire if not timely renewed. Be sure to investigate your state's statutes for the expiration date.

Ramona Featherby is a judgment recovery specialist in San Diego, California and past president of the California Association of Judgment Professionals.

JUDGMENT COLLECTION

©2011 Ramona Featherby