Know Your Rights When Your Loan or Account Is Sold

In recent years loans and retail accounts have been bought and sold much like any other product. Most of us know that our mortgage is rarely owned by the company who originally executed the loan documents. Today, a “book” of loans are placed on the market by a bank or retail loan company hoping to reap instant cash. The originator’s profits are made from origination fees and loan document fees that are added to the mortgage. The same can be said for credit card accounts. The card producer packages a “book” of accounts for sale, eventually selling them to a liquidation company at a discounted fee.

Ordinarily, you pay on these loans and accounts not knowing that you are actually paying a third party who, by assignment, has become your creditor. But what happens when these loans become overdue? Collection procedures become very complicated due to the assignment of these “securities.”

A recent Third District case highlights the problems inherent to purchasers of these accounts. The case, Retail Recovery Serv. of NJ v. Conley, 2010 Ohio 1256, involved the attempted recovery by the Plaintiff of monies owed on a credit card. The balance included interest, and “recovery” and other fees that were added to the account.

Retail Recovery Services is a company who purchases accounts at discount and then liquidates the account seeking to recover the discount it paid the retailer plus other interest and fees. In this case it attempted to recover an account owed by the Defendant.

Pertinent facts included the following:

1. Although the Plaintiff attached bills of sale and assignments detailing a chain of custody to it, none of these documents itemized the Defendant’s account as part of those sales, and

2. The Plaintiff failed to produce a signed contract showing the Defendant agreed to the terms of interest and other fees the Retail Recovery was attempting to collect.

The court’s opinion stated, “In Natl. Check. Bur. v. Ruth, 9th Dist. No. 24241, 2009 Ohio 4171, the Ninth Appellate District reversed a trial court's grant of summary judgment to a creditor on the basis that it had failed to establish a clear chain of title, partly based on the fact that the bill of sale purporting to demonstrate chain of title indicated the seller bank was conveying to the purchaser bank "accounts described [an exhibit] attached hereto,” where no such exhibit was attached to the bill of sale in the record.”

Further, citing Minster Farmers Coop. Exchange Co., Inc. v. Meyer, 117 Ohio St.3d 459, 2008 Ohio 1259, the court opined, “a plaintiff-creditor cannot prove an interest rate merely by producing account statements reciting an interest rate, where it does not demonstrate that the interest rate was a term assented to by the parties in the written contract, such as by producing the terms of the underlying cardholder agreement.”

The court went on, and “[found] that the plaintiff-creditor had not shown that the specific fees were terms of a contract between it and the defendant-debtor.”

The court reversed and remanded the case ordering the lower court to review its findings in light of the appellate court’s decision.

Disclosure of Principal Vital in Avoiding Personal Liability

A recent Eight Appellate District case exemplifies the importance of definitively identifying an agency relationship to a third person with whom your are dealing. A failure to do so could result in personal liability.

The case, Independent Furniture Sales, Inc. vs. Dan Martin, dba, Martin's Appliance, 2009 Ohio 5697 involved the failure of the operating manager of a corporate buyer to disclose his agency relationship to the Plaintiff.

As stated by the court, “To avoid personal liability, an agent must demonstrate that he disclosed to a third party: (1) the agency relationship; and (2) the identity of the principal. If this disclosure is not made, then the agent may be personally liable for contracts entered in his own name...A corporate officer has a responsibility to clearly identify the capacity in which he is dealing in a specific transaction. The failure to comply with this rule will expose the corporate officer to individual liability on the resulting contract.”

In this instance, even the issuance of two checks on the corporate account was insufficient disclosure that Mr. Martin was the agent of the corporation. As occurred in this matter, the Defendant continually failed to disclose the principal-agency relationship over a ten year period. Although two checks were drawn over the decade from the corporate account, this was insufficient evidence to put the Plaintiff on notice that the Defendant was the agent for the corporation

Therefore, I advise clients as follows:

1. Any communications with third parties should be made on a document clearly citing the name and address of the principal.

2. When one signs any communication with the third party, that person’s title and relationship should be clearly set forth on the signature line or immediately underneath.

3. Never pay for a corporate debt using a personal credit card or personal check.

4. Never execute a personal guarantee or surety agreement unless required to do so to obtain credit for the corporation.