Expert: Michael Fay - 5/17/2010

Question
QUESTION: Six years ago we purchased a business and entered into 2 SBA backed loans thru a large bank. We sold the business and the bank & SBA allowed an assumption of the loans.
*Loan "A" "Agreement for Assumption of Mortgage" states under release from Liability: The creditor releases the seller from any and all liabilities on or under the Notes and the Mortgage.
New personal SBA Guarantees were signed by the purchaser. In addition to the assumption agreement listing the corporation a satisfaction of mortgage was recorded for myself and my spouse. New changes of debtor UCCs were executed.
*Loan "B" "Agreement for Assumption Of SBA Express Promissary Note and Security Agreement" states under release from liability:
The Bank does release the seller from any and all liabilities on or under the Promissory Note and the Security Agreement. New SBA personal guarantees were signed by the purchaser. New change of debtor UCCs were executed. No satisfaction was recorded because the original promissory note was not recorded. All of the above forms have signatures for myself(corporation), buyer, attorney for the bank, and the bank.
  The group that assumed the debts were foreclosed on 2 years ago and and a judgement was issued and recorded for their corporation and themselves. This week I was contacted by a collection agency attempting to collect from me!

ANSWER: SJ-
The collection agency is grasping at straws.  This is not uncommon.  They often assume that any money they can get from any source is good money.  There are hundreds of suits every month filed against collection agencies for breach of the Fair Debt Collection Practices Act (FDCPA), and literally thousands of complaints every month; the industry is on pace to set another record again this year.

Based on what you have documented here, you have ABSOLUTELY NO OBLIGATION WHATSOEVER.  However, you still need them to go away.  So you need to get the name of the supervisor of the person that contacted (or next contacts) you.  Do not talk to the person that calls you, they have no power or authority.  Once you have his or her supervisor, get their full name and fax number.  Send a copy of the releases that you have expressed here.  Also include a cover page that indicates:
* You are providing proof of satisfaction that they should already be aware of
* This proof should also have been provided by their client(s)
* This proof is also available at the Secretary of State as pertains to the UCC on Loan A
* This failure to properly research the case is viewed as failure to properly perform due diligence and a dereliction of their duty to provide verification of the debt – a violation of the Act
* Since you have provided evidence that the debt is not yours, you request (or demand, your choice):
 - immediate correction of any information that may have been provided to any consumer bureau – also a violation of the Act
 - written proof that the information with the bureau(s) has been corrected
 - written apology for their actions, which should also contain
 - one final written agreement that there will be no future contact made on this erroneous debt obligation.

It is important that your cover letter indicate that you are not just disputing the debt, you are providing LEGAL PROOF that the obligation is not yours.  The reason is that if your fax is interpreted as just a dispute this can only delay the process of gettng them off your case.  

It is also important that you do this as soon as possible.  They have 30 days to notify you of your right to dispute the debt and then you have 30 days to respond with request for verification.

Failure of the collector to abide by these conditions is a violation of the FDCPA, and each violation carries a fine of $1,000 plus attorney’s fees.

I’m sorry that this has happened, but there is some legal precedent for it:  “Verification should include at a minimum the amount owed and the name and address of the original creditor” and in this case, you are the “original creditor.”  However, as I have pointed out above, that was just the collection agency being lazy and not doing the proper research.

Best of luck, and again – don’t worry too much; this should be easy to make go away.

Michael


---------- FOLLOW-UP ----------

QUESTION: Thank you Michael for the prompt response. The collection service is now stating that they are collecting on behalf of the Treasury Department and SBA! For the balance of what they paid to the bank. The SBA personal guarantee says that the lender(bank) has the right to remove or release the borrower(corporation) or guarantor(me) or both. The letters of assumption state that the bank releases or corp. and the satisfaction of mortgage was to us individual. I don't now what to do next.

Answer
The additional details have not significantly changed the original analysis.  They are trying to collect from someone who has no obligation, remember “SBA allowed an assumption of the loans” as did the bank.  Your business was successful and/or profitable and was sold; that is not your responsibility that the purchaser defaulted.  

This would be no different than trying to go after the Pillsbury corporation for losses when Bennigan’s filed bankruptcy after they were acquired by S & A restaurant Group.  (Well, there would be a little difference given the time between selling and bankruptcy – but you get the idea).

They want somebody else to pay for their mistakes and they are using a technicality to try and squeeze it from you.  It is my opinion that this is still not your problem.  But it looks like you might need professional legal assistance to fight this one.