Simon PLC Attorneys & Counselors – June 2021 Memorandum
DEBT BUYERS MAKING YOUR CASE IN COURT
Bloomfield Hills, Michigan – The rise in the number of assignments of purchased debts and claims have exploded over the years due to many factors, among them– the rise of revolving debt and personal debt, creditors seeing the sale of its own debt as profitable, and the shifts in the way financial institutions deal with collections due to the imposition of regulations that mandate banks meet certain capital requirements. Since the original creditor is not the entity attempting to collect on the debt, debt buyers, as they are often referred, encounter many challenges, especially when they seek to exercise their rights in court. This article addresses some of these challenges and hopefully guides a debt buyer to maneuvering through some of the challenges encountered in the courts and ultimately prevailing on its claims.
Standing is the right of a party to sue an individual or entity in court. Unless a debt buyer can prove it owns the debt it has sued on, it will not be able to prevail in court. The Michigan Supreme Court have long recognized the right of the assignee of debt to bring an action as the real party of interest. Kearns v. Michigan Iron & Coke Co., 66 NW2d 230; 340 Mich 570 (1954). It is essential that a plaintiff establish that the cause of action was assigned to that plaintiff. On May 31, 2011, the Michigan Court of Appeals in Brownbark II LP v. Bay Area Floorcovering & Design Inc. and Gregory Gromaski, Court of Appeals Case No. 296660, elevated the level of proof needed to prove the assignment in debt buyer cases. Upholding the trial court’s decision, the Court of Appeals concluded that the evidence at trial was insufficient to establish a valid assignment of the defaulted loan, and therefore, affirmed the dismissal of the case. The Court of Appeals affirmed that the reliance by the Plaintiff on a half-page document, an allonge, which was a general assignment of a block of loans, without specific reference to any specific account number as well as being unsigned or notarized, was not sufficient to establish a valid assignment. A specific assignment, or affidavit supporting such an assignment, specifying the debt (i.e. account numbers), signed and notarized by the original creditor or by the party to be charged with the agreement, contract or promise was required. Further, if a debt buyer bought the debt from another debt buyer, it will need to provide a chain of assignments going all the way to the original creditor. Failing to provide such documents would prove fatal to the debt buyer’s case. However, one must not mistake a challenge to standing as a right of the debtor to challenge that an assignment in of itself is voidable, that is, claim an assignment is invalid on such basis as fraud or raise questions or concerns as to the motive or purpose of the assignment. A debtor cannot “challenge the validity of assignments to which it was not a party or a third-party beneficiary, where it has not been prejudiced, and the parties to the assignment do not dispute their validity.” Livonia Prop. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 717 F. Supp 2d 724 (ED Mich. 2010), aff’d 339 Fed Appx 97 (CA 6, 2010).
Along with challenges to standing, debt buyers often face hearsay challenges, proving their case in court. Specifically, a defendant debtor contends that the plaintiff debt buyer failed to lay proper foundation showing that the documents that the debt buyer rely on fell within the business record exception to the general rule that hearsay is admissible. However, courts have held that plaintiff “did not have to lay the foundation for the admission of the [documents] in order for the court to consider them on a motion for summary disposition so long as there was a plausible basis for the admission of the [documents].” Barnard Mfg. Co., 285 Mich App 362; 775 NW2d 618 (2009).
Hearsay is defined as “a statement, other than the one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted”. MRE 801 (c). However, there are numerous exceptions to that general rule. One is known as the business-record exception. The business-record exception provides as follows:
Records of regularly conducted activity. A memorandum, report, record or data compilation, in any form, of acts, transactions, occurrences, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, or by certification that complies with a rule promulgated by the supreme court or a statute permitting certification, unless the source information or the method or circumstances of preparation indicate lack of trustworthiness. MRE 803 (6)
In the recent case of Navient Credit Finance Corporation v. April Newton, Court of Appeals Case No. 351329 (December 22, 2020), the Court of Appeals addresses this very issue and how a debt buyer can lay a plausible basis for admissibility of documents to support its claims on a motion for summary disposition. In this case, the debt buyer in support of its motion for summary disposition attached affidavits from Mary Kay Mauer, a litigation supervisor for Navient Solutions, LLC, a subsidiary of Navient Corporation. In her affidavit, Mauer explained that she was an employee of “Navient Solutions, LLC as a Litigation Supervisor.” She stated that her “job duties include, but are not limited to, reviewing and processing documents and records relating to loans in default, researching and responding to inquiries via telephone and/or in writing pertaining to litigation accounts, and reviewing, processing, and signing affidavits relating to account balances on loans in default.” She stated that she was “familiar with Navient Solutions, LLC and plaintiff’s record keeping practice and activities” and that she had “access to the records of [defendant’s] loan account,” and she “personally inspected the account’s records regarding the balance due on [defendant’s] loan.” She explained that “[a]ccount information and business records regarding plaintiff’s accounts are kept and maintained by Navient Solutions, LLC, as Servicer for plaintiff, NAVIENT CREDIT FINANCE CORPORATION.” Additionally, she swore that those “records are kept in the normal course of business and entries thereon and are made in the ordinary course of business at or about the time of events they purport to record” and that “[t]he records kept and maintained by Navient Solutions, LLC are reliable.” Mauer also in her affidavit stated in support of plaintiff’s action attached the “true, accurate and complete copy of the original promissory note between the defendant and Stillwater (the original creditor) and an “accurate and complete copy of the amortization” of defendant’s loan, which shows that the defendant defaulted in her obligation.
The Court of Appeals in affirming the trial court’s decision in favor of plaintiff and admitting the documents into evidence held that “plaintiff did not have to lay the foundation for the admission of the [documents] in order for the court to consider them on a motion for summary disposition as long as there was a plausible basis for admission of the [documents],” citing, Barnard Mfg. Co., 285 Mich App 362; 775 NW2d 618 (2009). Moreover, the Court noted that Mauer was someone with knowledge of the records attached to the plaintiff’s motion [MRE 803 (6)] and that her affidavit “set forth with particularity such facts as would be admissible as evidence to establish or deny the ground stated in the motion.”
For our debt buyer clients, success in court proceedings often come down to proper assignments specifying the debt being sued upon and affidavits that properly set forth the affiant’s personal knowledge of the debt buyers’ business activities and practices as well as knowledge of the specific debt and documentation supporting the debt. We at Simon PLC Attorneys & Counselors are always here to answer any questions or concerns you may have regarding those debts that you may have purchased and ensure your success on collecting on purchased debts.
N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.
