Collections becoming harder as real estate filings climb

Listen to this article

Fans of “Cheers” or “The Simpsons” appreciate the comic value of Sam Malone or Moe the bartender’s futile efforts to collect incalculable tabs from their most popular patrons.
But for real estate and bankruptcy attorneys, consumer and commercial collections are no laughing matter.

From 2003 to 2007 the total number of contracts and real estate filings increased by more than 17,000, including a spike of more than 7,000 in money judgment filings, according to figures from the Wisconsin Director of State Courts Office.

Several practitioners tie the increases to the slumping economy along with a jump in foreclosures and bankruptcy filings, which have generally made the collection of money judgments more difficult.

“When the economy gets tight, people understand that and move faster on collections,” said bankruptcy attorney J. David Krekeler, of Krekeler Strother, S.C., in Madison. “The only way to move faster is to start your lawsuits.”

Cashing Out

Krekeler said in his recent experience representing primarily small business owners, there is a “trickle-down” effect when it comes to debt collection.

When you’ve got people who are involved in mobile home sales, of which I’ve represented several, sales slow down because customers can’t get home loans to buy them,” explained Krekeler.

In turn, he said existing inventory sits on the lot and the dealer will lean on existing accounts receivable, but they also have to pay a bank for the inventory.

“My role in representing the debtor in those cases, is to try and get with the bank and buy them time, because almost every debtor believes time is what they need,” said Krekeler.

As attorneys like Krekeler are trying to keep their clients out of bankruptcy, other practitioners are looking to collect from the consumer.

A portion of attorney Jane F. Zimmer-man’s practice deals with collection and she said the overall climate today is more aggressive than five years ago.

“Anytime the economy struggles, you see consumers incur more debt, but also small businesses may start to be more aggressive in pursuing accounts receivable,” said Zimmerman of Murphy Desmond, S.C., in Madison.

Zimmerman said small business and especially landlords, who may have pursued collection through an agency several years ago, are now taking the next step and hiring an attorney.

“If they are flush with cash, they’re not paying as much attention to collection, but when things tighten up the first place they look at is outstanding accounts and they are pursuing collection through litigation,” said Zimmerman.

Getting Paid

Even though the number of filings for money judgment jumped 49 percent from 14,245 in 2006 to 21,243 in 2007, Krekeler does not see an increase in the amount of money ultimately being collected.

“The huge volume of claims doesn’t necessarily translate to more profit,” said Krekeler.

“As a lawyer, you always want as much inventory as possible, but you also want as much profit as you can get.”

Attorney Robert A. Pasch, who does collection law at Murphy Desmond, S.C., said in his experience, the best time to be a collection lawyer is during good economic times.

Pasch noted that even good clients who met their financial obligations in the past are slowed by the current economic climate. While he suspects most people want to erase their debt, Pasch also said others are simply forcing the hand of creditors because of a lack of communication.

“I think what you have is the debtor who otherwise would be talking to creditors and avoiding suit or working out making installment payments, is instead saying you can’t sue me because of this,” said Pasch. “Of course that doesn’t affect the creditor and they are filing the suits anyway.”

Banks are especially quick to file suit in foreclosure cases, said Michele M. McKinnon of Liebmann, Conway, Olejniczak & Jerry, S.C., in Green Bay.

“In this climate, I’m seeing banks that are very inclined to file suit more quickly and find avenues to wrap up litigation as fast as possible,” said McKinnon, who primarily represents lenders in commercial foreclosures. “In years past, an action would be filed to get the debtor’s attention, and then they’d work something out.”

Once the economy inevitably turns around, Pasch expects more debtors will face their debts, rather than avoid them.

“Then you will probably see collections settled more amicably,” said Pasch.

Until the turnaround starts, those in the commercial and consumer market might have to continue to just put it on their tab until an attorney comes to collect.

“I’m in a business that relies on people paying my bills, so I understand how it works,” said Zimmerman. “It’s not like an auto repair shop where you don’t get your car unless you pay the bill. Not everyone has that luxury.”