Collection Tactics Monitor: October 9, 2010

In our previous Collection Tactics Monitor: October 6, 2010 post, we talked about a debt collection technique employed by a company called Heritage Pacific Financial. Please read the prior post so you can put this post into context. Since that post, we received the following email:

"Hello, I am writing you on your article http://www.debtdefense101.com/2010/10/collection-tactics-monitor-october-6.html. I am pretty much in the same case than “Kim” except Heritage Pacific took it a step further and filed suit against me. More or less the same Boiler Plate FRAUD complaint. I’m in process of hiring an attorney to respond to this and ask the court to dismiss this case (plus their Statute of Limitation is expired). I wonder if the hundred of people being victimized by this company http://hpdebtexchange.com/ couldn’t unite and counter-sue or get them close down business…Best, PK"

So assuming that PK's email is true then Heritage Pacific believes one or all of the following:

1. It has the right to sue a debtor for fraud when it buy's the debtor's debt from the original lender. In essence, Heritage Pacific believes it can be assigned or "buy" a fraudulent loan. 
2. It is entitled to damages for alleged loan fraud involving a mortgage loan that can't be collected under anti-deficiency or non-recourse state laws. Basically a "run-around" anti-deficiency or non-recourse laws since these laws do not apply to fraud.
3. It has the legal right to conduct a "fishing expedition" by suing a debtor for fraud even though Heritage has no basis or proof. Why? because Heritage did not originate or loan the money, so there is no way Heritage could know if in fact "Kim" or "PK" committed fraud. In fact, Heritage does not seem to have a basis to allege fraud.
4. It can harass a debtor with a lawsuit so that the debtor would agree to settle instead of the financial and emotional expense involved in hiring an attorney and going to court. On top of that, if in fact, it's true that a debtor lied on his or her loan application then the debtor will have an incentive not to expose themselves to a court proceeding.

Unfortunately, PK has to spend money and time to defend themselves.

Lets focus on the "odds" game Heritage Pacific is playing. It is well known that during the lending craze many people obtained loans with credit and no real proof of income. These loans were called No Income No Asset verification loans. These loans were also called stated loans i.e. the borrower "stated" his or her income without having to submit any proof of income. These loans were also called "liar loans". In any event, there is a strong likelihood that the income "stated" in many of these loans may not be accurate. Why? because the "right" income had to be "stated" to get the loan approved. So who had an incentive to "state" an inaccurate income on a loan application? Is it the borrower or investor who wanted the home? Is it the mortgage broker or loan officer who wanted to earn a broker's fee or commission? Is it the original lender who could sell the loan to a Wall Street investment bank for a tidy profit? Is it a Wall Street investment bank who could make a healthy commission or fee by packaging hundred or thousands of loans into a mortgage backed security? or is it the investors, credit default swaps, traders, insurers, who all made money on securitized instruments backed by mortgage loans?

THIS RAISES A POTENTIAL DEFENSE AGAINST HERITAGE. A BORROWER CAN CLAIM THAT THE LENDER, BROKER, LOAN OFFICER OR ANY OTHER AFFILIATED THIRD PARTY PUT THE INCOME IN THE APPLICATION OR TOLD THE BORROWER WHAT THE INCOME SHOULD BE. FOR IT IS ALSO WELL KNOWN THAT MORTGAGE LOAN APPLICATIONS WERE PREPARED BY THE ORIGINAL LENDER/BROKER AND IT'S REPRESENTATIVES. IT IS ALSO WELL KNOWN THAT ORIGINAL DOCUMENTS PRESENTED TO OR SIGNED BY THE BORROWER MAY NOT BE THE SAME DOCUMENTS IN THE MORTGAGE LOAN FILE. BORROWERS NORMALLY DID NOT COMPLETE THE LENGTHY 1003 UNIFORM RESIDENTIAL LOAN APPLICATION. HOW CAN HERITAGE PRODUCE EVIDENCE ABOUT THE LOAN PROCESS IF IT DID NOT ORIGINATE THE LOAN? ALSO COULDN'T THE BORROWER COUNTER SUE HERITAGE AND THE ORIGINAL LENDER FOR FRAUD? WE SHALL SEE.

There are other issues raised. Heritage Pacific may be a legitimate debt collection company. However does the company employ legitimate debt collection techniques?

If you visit http://hpdebtexchange.com you will find that Heritage Pacific has developed an investment vehicle for people seeking solid returns on their money. It's called "HP Debt Exchange: The smart and simple way to buy and profit from debt". The investment vehicle consists primarily of second lien mortgages or lines of credits. An investor can by into the investment vehicle and share in the income from collecting the debt. The website explains why the company purchases second lien mortgages or lines of credit. The website also points out that it can be profitable for an investor to buy debt. This is no fly-by-night company. In many respects the investment strategy could be a sound business model. The company explains that they have excellent collection techniques such as "offering a discount payoff, forgiving back payments, and modifying terms of the loan." Sounds good, however there is no mention of suing debtors for fraud on loans Heritage purchased not originated. You can review the companies FAQ here.

This is the future of debt collection. Basically purchase a $50,000 2nd lien mortgage for $500 with investors money. Make a deal with the original debtor to pay back $10,000 and forgive the balance of the $50,000. Share the $9,500 profit ($10,000 less $500) with the investor. Thus, debt collection and investing in debt collection is a growing, profitable business. As more and more people decide to strategically default they will become prime targets for debt collectors. Since the debt collectors will have a source of capital from investors seeking to invest in debt collection.

This also raises an important principle first discussed in our book Strategic Default: How To Create A Brighter Financial Future For You, Your Family, Or Your Business. The seventh principle from the chapter, Eleven Principles of Strategic Default states:

"Debt Is Similar to the Physics Principle of Matter and Energy. There is a principle in physics that matter and energy can neither be created nor destroyed; they can only be rearranged. Debt follows the same lines. Once debt is created it cannot be destroyed unless it is restructured and resolved. This means that a strategic default does not eliminate debt unless you restructure and resolve it. Debt will follow you until it is restructured and resolved. A lender has a certain period of time to collect debt, not unlike a statute of limitations. In certain states a lender has up to 20 years. With certain limitations, a lender or creditor can seek to collect on its debt anytime before a statute of limitations expires."

So no matter what debt defense strategy you decide to employ, if the debt is not restructured (i.e. settlement, reduced payments, etc.) or resolved (i.e. debt is forgiven, statue of limitations, bankruptcy, or inability to collect), then the debt will follow you.

The Heritage Pacific saga will continue. Has Heritage Pacific developed an effective debt collection technique which utilizes a potential fraud lawsuit against a debtor to collect a debt? or is Heritage Financial simply playing the odds by using a "scare tactic" that could not possibly succeed in court and perhaps violate debt collection laws? Only time will tell.

In the meantime do not become complacent. Heritage Pacific is not the only debt collector in town. Be assured that debt collection tactics will become more aggressive as new techniques appear and AS MORE INVESTOR MONEY POURS IN.

Remember why you are reading this blog. Never forget to use every legally available debt defensive strategy that exists. It is your right. It is your duty.