New Jersey Appellate Division sets a higher bar for judgment in suits on unpaid credit cards

The typical suit on a credit card balance is as bare bones as you can get. Typically all the Complaint says is that money is owed on an account. Defending these suits usually falls into one of two categories, either "prove it", or "I don't owe you the money". Typically, at some point the creditor will file a motion for "summary judgment" the jist of which is that there really is no legitimate dispute of fact which needs to take up the court's time on a trial.

That is what happened when LVNV Funding sued Mary Colvel on a Citibank credit card. The trial court granted summary judgment based only on a computer-generated report that showed only a balance due and Ms. Colvel's name. But she disputed that she had gotten any bills on this card or ever had any credit card agreement with Citibank.

On appeal, the New Jersey Appellate Division reversed that judgment, and in doing so, raised the bar a considerable distance to make it harder for lenders to adopt the "because we say so" approach to credit card liability. The Appellate Division has instructed courts that in order to grant summary judgment on an unpaid revolving credit card account, they must be provided a complete account history identifying all transactions and payments or credits, all the applicable periodic rates of interest on the account, all information showing how finance charges are computed on each billing cycle, and the resulting balances. In essence, the lender has to provide the supporting billing statements.

Although this ruling follows the requirements of New Jersey court rules for a default judgment, there is a very good argument that at a contested trial, the lender will have to provide all the same  proofs to obtain a judgment, if the defendant contests liability or the balance due.

This is a standard that few creditors on credit card accounts have been willing to meet. Indeed, the plaintiff is often an entity like LVNV, that bought up a lot of these accounts in bulk, and very likely did not get more than a final statement with the balance owed. Forcing the lender to clear this hurdle creates incentives for settlement.

LVNV Funding LLC v Colvell, decided July 12, 2011 and approved for publication, (Docket No. A-1313-10TC)

Mortgage Modification-little real change but continuing misconceptions

Recently, the New York Times reported that certain lenders were proactively offering modified terms to borrowers at risk. Big Banks Easing Terms on Loans Deemed as Risks. A close look however shows that lenders are still steadfastly refusing to reduce principal on loans even where the property is very much "underwater". The loans in question are those that called "option-ARM's" that were among the worst of the questionable loans sold to borrowers in the heyday of the "anything goes" mortgage frenzy.

Mortgage modification is a hope and dream of many troubled homeowners, but the process is long, involved, frustrating, and only in a small fraction of cases, in our experience, are the results lasting or worthwhile.

Here are some of the more common misconceptions:

Lenders Have to or Want to Restructure My Mortgage because I owe more than the home is worth.

Lenders do not have any obligation to restructure your mortgage. They have every legal right to pursue all their rights under the loan documents, with few exceptions. The government sponsored "HAMP" or "Making Homes Affordable" programs only offer them incentives if they agree to modify your loan. A few lenders have reached agreements with state attorneys general under which they have agreed to offer borrowers for certain high-risk and speculative mortgage loans an alternative, if they meet certain qualifications. But these are the exception not the rule.And lenders rarely if ever will agree to reduce the principal balance on the loan. Instead they may temporarily reduce the interest rate, or extend the term and/or put the arrears on the back end of the mortgage.

Even this will not happen unless you are able to show that you can afford the reduced payment on the mortgage.

Misconception: Lenders Will Modify My Mortgage Because they will be better off than going through the risk and expense of foreclosure

One would think that a lender would prefer to avoid the expense and risk of foreclosing on someone’s home. After all, the market is flooded with homes and foreclosures. And foreclosures in New Jersey are, as of this writing, taking almost 3 years to get to a sheriff sale. Even then, the lender usually gets the property back and has to sell it in a very slow and continually-declining market. So the lender will act in their own best interest and want to deal, right?

Wrong in many cases. First, the "lender" is not a bank. The loan is almost always held in a trust owned by a large pool of investors. The loan was sold off early on. The Trust is controlled by a trustee whose rights and powers are governed and limited by a Pooling and Servicing Agreement. So who are you dealing with? Usually you are dealing with a Servicer, a company that collects money on each mortgage and performs other administrative functions in handling each mortgage in the trust pool. The Servicer usually gets paid a flat fee and has no incentive deal with your problems. Also, the Servicer’s powers are governed by the Pooling and Servicing Agreement, which usually require that a mortgage in default be foreclosed.

Servicers can and do offer or consider a mortgage modification. But remember that the Servicer’s ability to settle is not under its control. For these mortgage modification programs, there are usually strict guidelines that must be followed. If you do not meet those requirements, you do not get a modification.

Even where you meet the requirements, the process is slow and uncertain. This may be due to under staffing or some other reason. You can expect to have to produce detailed documentation. What you send may very likely get lost at least once and have to be resent. You may receive contradictory instructions. You may end up dealing with different people at different times who will not know anything about your application. Literally, "the left hand does not know what the right is doing". You may or may not get approved. If you are rejected, you probably will not be given an adequate explanation. We have seen situations where people were told they were approved only to later get a rejection letter. The history of loan modifications to date is that only a small percentage of borrowers really get permanent help. You may be one of them, but the process will not be fast or easy.

Careful evaluation of all the options is key to success. Before spending time on a mortgage modification, be sure to work up a personal budget and look at all your finances. The real problem may be with an accumulation of credit card debt or other debts. And in some cases, a bankruptcy may be just what is needed to free up your income so you can keep your home. A bankruptcy can in some cases be used to remove a second mortgage or pay off arrears on a mortgage over up to five years. These are options worth considering. Seek qualified advice from an experienced attorney.