I’ve been reading credit reports for 20 years. Often I’ll ask a client the status of a judgment that appears on the credit report. We’ll need an explanation for the derogatory credit account and the judgment may need to be paid and a Satisfaction of Judgment obtained in order to get the client’s mortgage loan approved.
Too often the reaction has been, “What judgment? I don’t have any judgments.” Upon further investigation we come to discover the judgment is real and truly in place against my client. But the client insists she was never served any court papers informing her of a pending court date. At the court date presumably she would have the opportunity to mount a defense of the judgment.
By the time the client finds out about the judgment—in her meeting with a mortgage professional to buy a house, or in the attempt to purchase a car—it’s too late. The client never showed up at court on the appointed date, never had the opportunity to present a defense and lost the case simply by “default” for not appearing. Thus a creditor—usually a collection agency at this point—obtains final and definitive proof that the debtor owes the money. The creditor then has the most potent weapon available to collect on that debt, either by seizing the debtor’s assets (such as a bank account) or forcing payment once the creditor discovers the notorious judgment sometime in the future.
This seems a particularly nasty collections tactic. At some point the debtor in such a case has to settle the debt, even if they had a valid defense in the first place. The debtor is forced to do so either because she is attempting to apply for some new form of credit, or, worse, a bank account has been seized through the enforcement efforts allowed once a creditor has obtained a judgment.
I think of the many cases I have encountered where clearly the debtor did not owe the money. Two examples come immediately to mind.
1. Health Care: Often my client has had for many years a comprehensive health insurance plan. But there appears on the credit report a judgment for some medical collection account that originated with some visit to an emergency room or for some medical test (X-Ray or blood test) that actually would have been covered by the client’s health insurance. Problem is the doctor/hospital assigned the debt to collection before the health insurance plan got around to paying the bill. I know this is the truth, because too many times my client was able to research the debt and get his health insurance to pay it! But the damage is done: the collection account or judgment is on the client’s credit report thus forcing the client to settle the debt and then do the appropriate followup with his health insurance after the fact.
2. Furniture. How do you force a woman to pay $5,000 for furniture she never received? You obtain a default judgment, that’s how! I’ve seen this happen more than once: the client purchases furniture on credit. At some point the order is cancelled, either through immediate action on the part of the client or through action on the part of the client and the furniture store (the furniture wasn’t available in that color or the cancellation was the result of poor delivery practices i.e., damaged goods). Months and months later, the poor client’s checking account is seized by some lawyer for non-payment of the furniture debt thanks to a default judgment. She never had the chance to show up in court with her documentation to prove the furniture was never delivered and thus she shouldn’t have to pay for something she doesn’t own.
NYTimes.com today reports that New York’s Attorney General is taking to task the firms responsible for serving the papers to debtors in these court cases. Apparently it has come to the attention of the Attorney General that these firms never actually get around to serving the papers; the notice of hearing documents often wind up in “the sewer.” Without notification, the client doesn’t show up. If the client doesn’t show up, “Presto!” default judgment is obtained. Nasty, very nasty.
I’m happy someone is finally taking a good hard look at this particularly nasty practice.