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BY GERALD J. ROBINSON

NEWJERSEYNEWSROOM.COM

The inimitable Yogi Berra could have been talking about the debt collection industry when he observed, "This is like déjà vu all over again."

The flap over robo-signers and improper legal documentation in home mortgage foreclosures now has spread to the credit card and consumer debt collection industry. The industry is now flooding the courts with credit card and other consumer debt collection cases that often have the foreclosure flaws: the documentation of unpaid bills is defective.

First, some background.

In the1990s and early 2000s, American consumers went on a spending spree, largely funded by easy credit card and home equity debt. As a result of the financial meltdown in 2008 and the ensuing loss of jobs and recession, many Americans with credit card and other debt were unable to pay their bills. Banks and other creditors attempted to collect these defaulted debts by sending the usual collection letters and making phone calls, but with the recession their efforts were largely unsuccessful.

Following their failed collection efforts the banks and other creditors resorted to their customary practice of selling the uncollected debts to debt collectors, usually for around 10 cents on the dollar. But there's a difference now between their prior practice and what happened in the last year or two: the number of consumers not paying their bills has skyrocketed and the number of debts sold to debt collectors has correspondingly soared.

Like the credit card issuers and other lenders, the debt collectors usually try to collect the debts themselves with letters threatening lawsuits and dunning phone calls. But when this fails-as it usually does-- they turn cartons full of the debts over to law firms known as "collection mills," whose job it is to bring lawsuits against the debtors for the unpaid bills. These firms, some filing thousands of suits annually, are now flooding the courts with collection cases.

The success rate for the debt collection firms in winning collection cases is an astonishing 90 to 95 percent. The reason for their success is simple: most credit card and other delinquent debtors don't show up in court when they are sued. If the debtor doesn't challenge the collection lawsuit, the court generally will enter a default judgment. This allows the creditor to collect using wage or property garnishment.

The huge wave of collection cases has created pressure to find ways to "expedite" the litigation process. So, like mortgage foreclosure lenders, the debt collection industry is getting into trouble by taking shortcuts with the documentation required to substantiate debt collection claims.

Laws vary from state to state, but to prevail in a contested debt collection case the creditor generally must prove that there was a loan agreement between the creditor and the debtor, the amount of the current debt and that the debtor has failed to repay the debt.

Moreover, the plaintiffs in the collection suits usually are the debt collectors to which the loans were sold and such plaintiffs are required to show that they are the legal owners of the debt. If the debt collection suit is contested and the necessary documentation is missing or signed by a robo-signer, the debt collector may fail to get a judgment.

According to a survey of 20 judges around the country interviewed by the Wall Street Journal, court calendars are choked with debt collection cases. Moreover a growing number of cases brought by debt collection companies are deficient because of sloppy, incomplete or even false documentation of debts. Suspicion that affidavits attesting to the amount owed may have been signed by robo-signers who never examined the underlying documentation often may be well founded.

The crush of debt collection cases now squeezing the court system linked with the increasing documentation failures of debt collection companies may encourage debtors to try to game the system. If they challenge the debt collector in court and the debt collector can't prove its case, the collection suit may be dismissed. Where the debt collector's documentation is insufficient, a debtor armed with knowledge of how to defend against a collection suit may be able to settle the case at a steep discount, or even defeat it completely.

The morality of avoiding debts by such tactics may be open to question. Yogi Berra gives advice on such dilemmas that is about as good as it gets: "When you come to a fork in the road, take it."

Gerald J. Robinson, Esq., formerly tax counsel to the New York City law firm of Carb, Luria, Cook & Kufeld, is a member of the New York and Maryland bars. He received his B.A. degree from Cornell University, an LL.B. from the University of Maryland and an LL.M. in Taxation from New York University. Prior to entering private practice he served in the Office of Chief Counsel, Internal Revenue Service. He is the author of the treatise, Federal Income Taxation of Real Estate, now in its sixth edition, and wrote the monthly newsletter, Real Estate Tax Ideas, both published by Warren, Gorham & Lamont. He is also a frequent lecturer and contributor to various professional journals.