Tales from the Debt Collection Crypt

| Mon Jan. 3, 2011 5:55 AM PST

When the widespread use of "robo-signers"—low-level employees signing mountains of foreclosure legal filings without actually reading what they said—bubbled to the surface this fall, it sparked public outrage and a 50-state investigation of mortgage companies by state attorneys general. But now the seamy debt-collection industry has one-upped the foreclosure industry's robo-signing disaster. One of America's largest debt collectors, Portfolio Recovery Associates, used court filings that were signed by a woman who'd died nearly a decade earlier.

Martha Kunkle died in 1995. Yet her name and hand-written signature appeared on debt-collection filings submitted by Portfolio Recovery Associates as late as 2006 and 2007, according to the Wall Street Journal. Facing a fraud lawsuit, Portfolio announced that documents with Kunkle's name were "defects" and couldn't be used in court. That was in early 2008, the Journal reports, more than a decade after Kunkle's death. But even then, Portfolio tried to use a Kunkle-signed document in July 2009 to collect on $2,892.10 of credit card debt.

The revelations have grabbed regulators' attention. Chris Koster, Missouri's attorney general, said he wants to investigate whether any Kunkle-signed documents were used for debt-collecting purposes in his state. Another attorney general, Lori Swanson of Minnesota, is already probing whether consumer debt buyers and collectors have falsified affidavits in debt-collection suits.

As shocking as it sounds, Portfolio's use of a dead woman's name to execute legal documents is right on par with the practices of the foreclosure industry. As myself and others reported this fall, for years major mortgage servicers—the underregulated middlemen who collect payments, assess late fees, and foreclose on homeowners—like GMAC and JPMorgan Chase charged employees with scrawling their name on tens of thousands of crucial foreclosure filings. The goal: to ram through foreclosures as fast as possible. Problem is, it's a violation of federal court rules to sign legal documents without reading and understanding what they say. "Foreclosuregate," which exploded into a national controversy, cast doubt on the legitimacy of foreclosures from Maine to California.

It's difficult to know how widespread dubious practices like Portfolio's are throughout the debt collection industry. But debt collectors, as you've probably heard, are hardly a bastion of ethical behavior.

What is clear, though, is how little regard certain mortgage companies and debt collectors have for the American legal system. Because, at the end of the day, that's what the robo-signing scandals tell us: that these financial heavyweights cared so little about the integrity of our judicial system that they saw nothing wrong with employing robo-signers to mass-produce faulty foreclosure documents, or with using a dead woman's name and signature to collect on old debts.

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