I am not a lawyer, I am a judgment and debt referral specialist (Judgment and Collection Agency Broker). This article is my opinion, from my experience in California, and laws are different in every state. If you want legal advice or a strategy to use, please contact a lawyer.
Anyone with a new debt collections or judgment recovery business will think more than once about which type of insurance they should purchase. There are risks in every business, and the risk of getting sued is one of the more important risks to consider. A judgment recovery business may have at least five more (although very rare) risks, in addition to the normal risks of any venture or business:
1) What if you die, or become disabled, or leave the judgment business and do not assign all or most judgments back to the original judgment creditors? You or your executors could get sued, and even worse, sued for the creditor’s share of an overly optimistic and purely theoretical value value for a judgment.
2) Letting a judgment expire during your watch. Judgments must be renewed, if one fails to renew a judgment, it is lost. Again, an original judgment creditor could attempt to sue you, for a way too optimistic and theoretical judgment value.
3) FDCPA and FCRA violations. Judgment Enforcers need to know of the laws. Being discreet, staying polite, having common sense, and taking care not to accidentally or purposely notify third-parties about the debtor’s debt, covers you on most of the laws. If you violate a law, the debtor could hire an aggressive lawyer, and sue you for a lot more than the judgment’s face value.
4) Having the sheriff levy the wrong person’s bank account. Because courts do not usually put debtor’s dates of birth and social security numbers on judgments, judgment debtors having common names can be problematic. Also, identity-theft can make the wrong person show up as the judgment debtor.
It can use a lot of time to verify things, if someone claims you had the sheriff levy the incorrect person as the judgment debtor. Most that claim they are not the debtor will be angry, and an average of half of such persons will be lying because they are actually the judgment debtor.
If you do pay the sheriff to levy the wrong bank account, immediately return the money taken from the mistaken judgment debtor the amount levied, their bounced check and banking costs, and something extra for their trouble – enough extra to eliminate their anger. One suggestion would be 3 times their costs, or $ 100, whichever is more.
5) Unreasonable or insane original judgment creditors. Some do not understand the costs and difficulties of judgment recovery. Some may attempt to sue you if you settle too low, do not challenge a judgment debtor’s bankruptcy, lose a motion to vacate the judgment – even when it isn’t your fault, or your action or inaction was the correct action to take. Even if the original judgment creditor has no valid reason to try to sue you, it could happen.
While one might get sued, for one of the possibilities listed above, it is usually rare that the party suing you would win. However, lawsuits are always expensive, a hassle, and time consuming.
Insurance almost never covers you if you intentionally avoid your responsibilities. If you become disabled or die, this becomes a preparation and behavior issue, not an insurance issue. Your executors should know they should assign your judgments back to the original creditors, unless you have another way to have the judgments handled.
In a judgment business, you are more likely to be sued, long before you die or become disabled. Often, the only insurance you would need is if you get if you get sued. The kind of insurance that often comes to mind is Errors and Omissions (E&O) insurance.
E&O insurance is common in many businesses, however it is more difficult to get in a judgment recovery or collection business, mostly because many insurance companies do not fully understand these kinds of businesses.
There could be an argument that because most judgment recovery specialists are sole proprietors working from home, representing themselves, their homeowners insurance would cover them for “personal liability” resulting from their ownership of judgments. Home insurance policy salespeople do not brag about this, and many are not even aware of this, however the details of the policy often support this. (I am not an insurance or a legal expert.)
If that last paragraph does not sound right, or if you use a business office, your homeowner’s insurance policy is off the table. Forget about using a bond, unless it is required by by law or by someone you are doing business with. Bonds do not protect you, they protect the general public against loss. You must pay the bond premiums, and then you have to pay the bond company every time a claim is filed.
You may want to buy E&O insurance, if only to meet the requirements of a few data providers. If you search, you will find E&O insurance providers for a collection or judgment business. (One of the cheaper places I have found is at www.rlicorp.com). E&O insurance is sometimes expensive, and when you get sued, you have to immediately pay the deductible, which is not cheap. The insurance company handles the lawsuit, not necessarily with a goal of protecting your business and name. Even when the lawsuits are frivolous, you still must pay.
Another problem with buying E&O issuance is that it could place a “bulls eye target” on you. Some may believe that if you have E&O insurance, you have deep pockets. Many of the valid reasons you can be sued may be greatly minimized if you learn the law, assign judgments back when appropriate, you remain reasonable, and don’t allow judgments expire on your watch.
Unless you must have E&O insurance for someone you are doing business with, or a data provider, you may save money with your attitude, actions, and your willingness to retain a good attorney if you get sued. Most of the time, if you are careful, and get sued once in a while for mistakes and oversights, or for frivolous reasons, what you pay a lawyer over the long-term will be less than the long-term cost of buying E&O insurance.
As mentioned before, E&O insurance could make one a target. If you are sued with a frivolous lawsuit, it might be a good idea to ask the other side’s lawyer who their E&O insurance carrier is?, knowing that E&O claims are expensive and must be paid immediately. Also, many of the FCRA and FDCPA law applies mostly to consumer debts such as credit cards and car loans.
Mark Shapiro – Judgment and debt Broker – best quality free leads for collection agencies and contingency collection attorneys.
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