Shylock
Lots of us on here have had to deal with collection agencies or original creditors that claim that we owe them money. A lot of attention on this site goes into discussions of the Fair Credit Reporting Act and Fair Debt Collection Practices Act. All of that is good and fine, but it misses an important point.
The ultimate test of a collection agency's ability to collect money from you is the threat of legal action. In order for a collection agency to win a contested legal action they must have a valid contract with you. This document outlines some of the legal requirements and pitfalls for a lender from a lender's point of view. You may find it very instructive.
1. A contract must have a 'meeting of the minds.' The terms, conditions and other factors must be understood and agreed to by both sides. This is usually accomplished by putting the agreement IN WRITING.
2. Consideration must change hands. A statement signed by me saying, "I agree to pay you $1,000.00 in ten equal payments of $100.00" is not a legally enforcable contract unless you can prove that you gave me something of value to induce me to sign. For this reason many contracts start with the words, "FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged..." or "In consideration of $1,000.00 cash, in hand..."
3. Lawful purpose. A contract whereby one person promises to kill someone, have sex for money or sell controlled substances without a license are enforceable.
4. In general, contracts entered into before the person is the age of 18 are not enforceable.
5. Signed. Agreements for money over certain amounts must be in writing. In California the limit is $500. Written contracts must be signed by the party receiving the consideration. Loan contracts should be signed by the person getting the money. Two signatures are not requried.
6. Dated. If a contract is not dated, it is not enforceable. I used to work for a large, well-known insurance company whose name you would instantly recognize. A big part of my job was taking applications for health insurance, noticing that the people hadn't dated their applications and FORGING THE DATE. If a contract isn't dated, it isn't enforceable.
It never ceases to amaze me how many people sign things and don't keep a copy. Always keep a copy of what you sign.
Pitfalls for an unwary lender.
1. Cross-outs. People may cross out objectionable clauses and then sign. An unwary lender, not realizing the cross-out existed may not realize that valuable clauses were invalidated until it's too late. Arbitration clauses are the most commonly crossed-out clauses. Initials next to the cross-out strengthen the case for the cross-out. Selective cross-outs can be even more powerful where clauses formerly reading, "DMV Refunds shall be conveyed to seller from buyer" when "to seller" gets crossed out will read "DMV Refunds shall be conveyed ... to buyer." Brutal. Crossing out numbers can be equally deadly, turning an agreement to pay $10,000.00 into an agreement to pay $1,000.00. Vicious.
2. Lost Instruments. If the original, signed document is lost that can be a massive headache. In order to sue the lender will have to purchase a lost instrument bond. Especially in mortgages, notes have an uncanny way of getting lost. If it's been 22 years since the loan started and the guy decides to stop paying, how many banks do you think can come up with the original, signed document? Not many.
3. Affirmative defenses. Claims of fraud or misrepresentation go far towards undermining the note's viability. If the salesman promised you that the air conditioner had four speeds and it only had three that's excellent grounds for voiding the whole agreement, even if you've already taken the air conditioner home and used it for months.
4. Contract additions. Adding the words, "At borrower's sole discretion" at key places in the legal contract can have a very nasty effect. This is not nearly the problem that crossouts are, because additions readily stand out. That doesn't mean that the word 'if' thrown in at a key point can't throw a moneywrench in the whole situation. *IF* is a very bad word to have in a legal contract because it makes for a lot of ambiguity.
The ultimate test of a collection agency's ability to collect money from you is the threat of legal action. In order for a collection agency to win a contested legal action they must have a valid contract with you. This document outlines some of the legal requirements and pitfalls for a lender from a lender's point of view. You may find it very instructive.
1. A contract must have a 'meeting of the minds.' The terms, conditions and other factors must be understood and agreed to by both sides. This is usually accomplished by putting the agreement IN WRITING.
2. Consideration must change hands. A statement signed by me saying, "I agree to pay you $1,000.00 in ten equal payments of $100.00" is not a legally enforcable contract unless you can prove that you gave me something of value to induce me to sign. For this reason many contracts start with the words, "FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged..." or "In consideration of $1,000.00 cash, in hand..."
3. Lawful purpose. A contract whereby one person promises to kill someone, have sex for money or sell controlled substances without a license are enforceable.
4. In general, contracts entered into before the person is the age of 18 are not enforceable.
5. Signed. Agreements for money over certain amounts must be in writing. In California the limit is $500. Written contracts must be signed by the party receiving the consideration. Loan contracts should be signed by the person getting the money. Two signatures are not requried.
6. Dated. If a contract is not dated, it is not enforceable. I used to work for a large, well-known insurance company whose name you would instantly recognize. A big part of my job was taking applications for health insurance, noticing that the people hadn't dated their applications and FORGING THE DATE. If a contract isn't dated, it isn't enforceable.
It never ceases to amaze me how many people sign things and don't keep a copy. Always keep a copy of what you sign.
Pitfalls for an unwary lender.
1. Cross-outs. People may cross out objectionable clauses and then sign. An unwary lender, not realizing the cross-out existed may not realize that valuable clauses were invalidated until it's too late. Arbitration clauses are the most commonly crossed-out clauses. Initials next to the cross-out strengthen the case for the cross-out. Selective cross-outs can be even more powerful where clauses formerly reading, "DMV Refunds shall be conveyed to seller from buyer" when "to seller" gets crossed out will read "DMV Refunds shall be conveyed ... to buyer." Brutal. Crossing out numbers can be equally deadly, turning an agreement to pay $10,000.00 into an agreement to pay $1,000.00. Vicious.
2. Lost Instruments. If the original, signed document is lost that can be a massive headache. In order to sue the lender will have to purchase a lost instrument bond. Especially in mortgages, notes have an uncanny way of getting lost. If it's been 22 years since the loan started and the guy decides to stop paying, how many banks do you think can come up with the original, signed document? Not many.
3. Affirmative defenses. Claims of fraud or misrepresentation go far towards undermining the note's viability. If the salesman promised you that the air conditioner had four speeds and it only had three that's excellent grounds for voiding the whole agreement, even if you've already taken the air conditioner home and used it for months.
4. Contract additions. Adding the words, "At borrower's sole discretion" at key places in the legal contract can have a very nasty effect. This is not nearly the problem that crossouts are, because additions readily stand out. That doesn't mean that the word 'if' thrown in at a key point can't throw a moneywrench in the whole situation. *IF* is a very bad word to have in a legal contract because it makes for a lot of ambiguity.