Debt, Foreclosures Worsen in 2008

Friday, August 13th, 2010

Broward Daily Business Review, Copyright 2008 ALM Properties, Inc. All rights reserved.

August 12, 2008

COURT SYSTEM'S SECOND WAVE: DEBT CASES TO FOLLOW FORECLOSURES, Alana Roberts

As foreclosure cases clog an overburdened court system, creditor attorneys foresee another flood coming to the courts as the U.S. economy flattens. They expect other forms of debt, like credit card and hospital bills, to also begin clogging court dockets. In response, attorneys for creditors are pushing for ways to streamline the process for handling cases involving small debts to save time and money as courts face budget cuts.

"I don't think you've seen the worse of everything," said Pompano Beach creditor and commercial litigation attorney Daniel Shamy. "There are a lot more credit card holders than homeowners. The recession is still young. I think it's going to get worse, I feel bad for the judges. I anticipate a flood."

Some creditor attorneys in Florida are organizing to push for statewide changes in cases beyond the reach of small claims court. Debtors who have lost their homes to foreclosure also are likely to have unpaid credit card bills, Shamy said. Some people have used credit cards to pay their monthly mortgage payments.

"For every one foreclosure you have five bad credit card claims," he said. "When someone can't pay their mortgage, what is the big deal about not being able to pay a credit card? All of those debts are going to go into courts just the same as the mortgage, but you have one foreclosure case and five different credit card cases that are separate cases on their own and that inundates the courts."

George Castrataro, supervising attorney for the consumer unit at Broward Legal Services, said the surge in foreclosures overshadows other debt collection cases. "We're seeing as many as 400 people call a week with foreclosures," he said. But Castrataro said he's seen an uptick in debt collection cases. "We see them coming in the form of garnishment actions to collect a debt where there's already been a judgment, we've seen a spike in those," he said. "You have someone who is making a small sum of money where the debt collector is taking a portion of their wages. We see at least 10 clients a week facing some form of a judgment and are experiencing a garnishment."

Miami-Dade County Court Judge Eric Hendon has seen a spike in such cases. "There certainly appears to be a spike," he said. "I'm in the civil division on the county court. We've had these cases all along, but there seems to be many more of them now." In response, Hendon said judges must make do with the meager resources they have. "The bottom line is you schedule the hearings you squeeze them in," he said. "All of us have very high case loads, all you can do is set them on the calendar and try to get to them."

Palm Beach County is running well ahead of last year's pace in small claims cases, many of which are debt collection suits. There have been 10,492 small claims cases filed so far this year compared with 11,954 in all of last year, according to the county clerk's office.

Miami-Dade and Broward counties don't count small claims cases separately. Creditor attorneys say there are better ways of addressing the surge and are organizing to push for ways to streamline the system.

There's no need for a trial in cases where people don't dispute the amount owed but say they aren't able to pay, said Robert Markoff, a Chicago creditor attorney and president of the National Association of Retail Collection Attorneys. "If there's no dispute as to the validity of the debt or the amount of the debt, but the dispute is on how it may be repaid that leads to a lot of unnecessary hearings," Markoff said.

"Many courts say if the consumer disputes the matter we'll have a trial and bring in a witness. Why do you need a witness when the dispute is how much to pay and when to pay it?" he asked. "A trial is meant for situations where the consumer says, 'It's not me, I'm not the right party, it's not my debt or the amount is not correct, there are improper charges or calculations.' Usually that's not the case."

Often, a decision on whether or not to hold a trial depends on a judge's personality, Markoff said. "Some judges are better at pre-trying the cases than others," he said. "If there's no real dispute, enter a judgment and help the parties work out a payment plan, but not have a trial over a situation where the consumer just doesn't have the money to pay."

Judges often differ on what they'll accept as proof of a debt, and that should be standardized, Markoff said. He suggested courts should look to California as an example of how to streamline the process.

The Golden State changed the way its courts handle small debt collection suits last year. Cases worth less than $25,000 receive special treatment. Plaintiffs must serve debtors with lawsuits within 60 days of filing, and provisions were added to allow final judgment within six months if no settlement has been reached. Hendon said the small claims process in Florida already is streamlined, and the

court must ensure debtors' rights are preserved. "There are rights on both sides. The creditors have rights, and of course the people they're suing have rights," the judge said. "I don't know a way you can streamline it without negatively impacting someone's procedural rights."

In Florida, debts worth $5,000 or less are handled as small claims cases in county court in a two-step system where cases go to a pretrial hearing where the parties have the opportunity to mediate immediately or go directly to trial. A more complex process is applied in cases worth $5,001 to $15,000 in county court and more than $15,000 in circuit court. "In circuit court, you have to serve the party and close your pleadings by doing a complicated filing for discovery and notice it for trial," Shamy said. "It could take years."

One way to expedite cases worth $5,000 to $15,000 would be to apply the small claims process, Shamy said. "If they were able to apply the same streamlined version of the process that the small claims court uses for consumer cases in county court, then that would help to move the process along quicker so the courts would be able to resolve these cases faster," he said. In a small claims case, a date and time for a pretrial hearing is set at filing time and included on a summons. Mediators are part of the pretrial process. A trial date is set if no settlement is reached.

A group of creditor attorneys led by Jacksonville attorney Michael Debski of Rubin & Debski is organizing the Florida Creditors Bar Association, which would address problems they see in the system. He declined to comment because the group has not elected officers.

Florida is one of several states where creditor attorneys are pushing for changes to the system.

Castrataro echoed Hendon's sentiments on the need to protect consumer's legal rights. "A lot of times people who are lower income don't fight or don't have the resources to fight the debt," he said. "We see more than anything else default situations where the borrower or debtor doesn't appeal. They don't appreciate that they have legal rights." If debtor rights were stripped, consumers would have even fewer rights. "You would have rubber stamped defaults," he said.

Alana Roberts can be reached at (305) 347-6648.