Kirk M West's Blog

It was bound to happen.  I mean really.... our recent success rate was just too strong.  Out of over 150 successful short sale transactions that we have been involved with one of our valued clients recently received legal documents via certified mail.   You guessed it. A collection agency was attempting to collect the unpaid balance from their old 2nd mortgage. But fear not.... that same collection agency quickly "went away"!

I have found myself more frequently addressing this question or several questions about this topic.  So I felt I needed to share it with the public (and make it easier on myself in the long run by simply referring clients to my blog in the future)

1. Here is what to Expect when you get that speical pakcage or visitor at the door - a lawsuit is simply a claim by one party (the Plaintiff) against another (the Defendant), which is filed in a court, asking a Judge to Order the Defendant to do something. For example, the lender sues the debtor seeking a Judgment ordering the debtor to pay the remaining debt. In many cases, the Plaintiff will not be the actual lender who made the loan. Collection companies are buying loans from lenders for pennies on the dollar then suing the borrowers for the full amount. I have read that one company, Cohen & Slamowitz in New York, has actually automated the process and is filing 80,000 lawsuits a year! The lawsuit has two parts: the Summons and the Complaint. The Complaint states the facts as to why the Plaintiff claims they are entitled to a Judgment against the Defendant. The Summons is the Order for the Defendant to respond to the Complaint within a certain amount of time which varies from State to State. In California it is 30 days.

2. What do you do next - How to Respond - Plaintiffs hope that Defendants will ignore the Summons and fail to file a response, usually an Answer, within the allowed time. If so, the Plaintiff will quickly get a Default Judgment and can start pursuing the collection by attaching the Defendant's property and garnishing their wages. This is the worst possible result for a Defendant because it is giving up without a fight. Instead, upon being served with a Summons and Complaint, the debtor should get together with an Attorney and determine how best to respond. Often, the first response is attacking the Complaint through a legal process called a Demurrer. There are many grounds for this such as: (a) the Plaintiff doesn't own the loan and therefore has no right to file the lawsuit; (b) the lawsuit is barred by various laws of the State (in California we have several related "anti-deficiency" laws); and (c) the Complaint is defective. At the same time, the attorney will start the Discovery process of compelling the Plaintiff to produce copies of every document they are relying on in filing the lawsuit. While the Demurrer could actually make the lawsuit go away like in the case of our client, it generally won't. What it will do is force the Plaintiff to spend time and money responding which is the last thing they really want to do. So it starts the negotiation for Settlement.

3. Why Settle? - Settlement Negotiations - At the start of a lawsuit, the Plaintiff wants to collect everything and the Defendant wants to pay nothing. While both sides want to win at trial, only one side will. Settlement eliminates that risk and avoids the heavy financial and emotional costs of lengthy litigation, usually well over a year.  As local Attorney Steven Beede has stated, in Sacramento, CA where we are based, 98% of lawsuits will settle before trial. The hard part is reaching an agreement. Inevitably the Plaintiff will feel they got too little and the Defendant will feel they paid too much, but both will agree that the settlement is better than the alternative of continuing in litigation. There is no standard percentage that determines settlement. Rather, it is a complex evaluation of the Plaintiff's evidence, the Defendant's defenses and financial capacity, and the likely outcomes.

5. The Role of Bankruptcy - The Bankruptcy laws of the United States are designed to give an insolvent debtor a "fresh start" if there is no way they can pay their debts. While some attorneys would recommend filing Bankruptcy if faced with a lender lawsuit, this is not necessarily the best solution for everyone. For example: First, other than this bad debt, the defendant may have other assets they want to keep; Second, by responding to the lawsuit, the defendant may be able to settle the debt or avoid it entirely; Third, Bankruptcy will stay on the debtor's credit for 7-10 years; and Fourth, the defendant may not even qualify for Bankruptcy. So, while it is one solution, Bankruptcy is not always the best solution.

while I realized this weeks blog post may not make you feel all warm and fuzzy inside, it should at least give you a clearer ideas what how the overall process works.  Educating yourself can often releive a lot of that stress caused by ther unknown.  The information presented in this Article is not to be taken as legal advice.... because I ain't no lawyer. *chuckle*  But I would be happy to refer you to one that specializes in these types of cases. 

Every person's situation is different. If you have specific questions about your situation, about short sales, foreclosure, or any other issues you may be facing, feel free to contact us me at kirk@kirkmwest.com. I offer a completely confidential and FREE consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-893-9666.