The phenomenon of corporate purchases of bundled consumer debt is nothing new. What is new is the question of what a successor buyer must show to collect on individual debt accounts within the bundle.
The Court of Appeals recently answered that question in the case of Gemini Capital Group, LLC v. Jones.
Initial financing contract
LeRoy Jones purchased a used Ford Ranger from Timber Ford Mercury. Jones entered into a “Motor Vehicle Consumer Simple Interest Installment Sale and Security Agreement” with Timber Ford Mercury. Timber assigned the debt to HSBC Auto Finance, Inc. HSBC thereby financed Jones’ purchase.
It is undisputed that Jones eventually stopped making payments due under the financing agreement.
Therefore, HSBC started a small-claims action against Jones seeking to repossess the Ranger.
The outcome was a default judgment against Jones. The Ranger was then repossessed and sold.
Successor buyer’s lawsuit
Some six years later, Gemini Capital Group filed suit to recover a deficiency judgment against Jones in respect to the Ranger.
Gemini moved for summary judgment, and included an affidavit with attached documentation from one of its employees who averred that Gemini was the 4th successive buyer of Jones’ debt.
According to the affidavit, Timber first assigned Jones’ debt to HSBC. HSBC then “transferred the contract and the rights therein” to Santander Consumer USA Inc. Santander, in turn, “sold the contract and the rights therein” to Main Street Acquisition Corp. who “sold the contract and the rights therein” to Gemini.
Gemini concluded by asserting that it is “the current holder and owner of Jones’ contract and the rights therein.”
Jones took exception to the motion. Although he didn’t submit any of his own evidence to dispute the claim that Gemini was the current owner of his debt, he argued that Gemini’s evidence was “insufficient to make a prima facie showing” of that fact.
Sawyer County Judge John Yackel rejected Jones’ argument. He viewed the Gemini documentation as constituting a “logical … step by step … from the point the vehicle was purchased, was financed by HSBC, all the way up to Gemini.” Judge Yackel therefore granted Gemini’s motion for summary judgment.
Court of appeals analysis
In an opinion inked by Lisa Stark, presiding judge of District III, the court of appeals reversed Yackel’s grant of summary judgment.
After carefully reviewing the documentation attached to Gemini’s affidavit, the court concluded that there was no indicia of transfer, sale or assignment of Jones’ specific debt to any entity other than HSBC.
Typically, the court observed, there would be a data listing of the thousands of accounts bought by a purchaser of a debt bundle. Here, there was so such listing in the documents Gemini submitted with its affidavit. Therefore, there was no way to determine that Jones’ specific debt was included.
“We believe it is self-evident that, in order to make a prima facie showing that it is the owner of Jones’ debt, Gemini must present evidence … showing that Jones’ specific debt was transferred from HSBC to Santander, from Santander to Main Street, and finally from Main Street to Gemini.”
Without a showing that it was the owner of Jones’ particular debt, Gemini, as a subsequent buyer of bundled debt, could not demonstrate that it was the real party in interest with standing to sue on Jones’ debt.
Saying so doesn’t make it so
Gemini further argued that even if the affidavit’s attached documents were insufficient to make a prima facie showing that Gemini owns Jones’ debt, the affiant’s “averments alone” of having personal knowledge of the records showing the transfers and sales were sufficient to make that showing.
The court disagreed. It noted that the hearsay exception, sec. 908.03(6), calls for an affiant’s personal knowledge of records of regularly conducted activity.
The court relied on another consumer-debt case, Palisades Collection LLC v. Kalal. There, the issue was whether account statements attached to the affidavit of the subsequent creditor’s employee were admissible under sec. 908.03(6).
The Palisades court said no, because the affidavit “presented no facts that showed the affiant had personal knowledge of how the account statements were prepared and whether they were prepared in the ordinary course of the original creditor’s business.”
Similarly, there was nothing in the Gemini employee’s affidavit that reasonably implied he “would have personal knowledge of Jones’ debt having been transferred from HSBC to Santander and from Santander to Main Street. Simply declaring he has personal knowledge of these events does not make it so.”
This new case extends the Palisades case into related territory. Palisades dealt with a subsequent purchaser of bundled consumer credit card debt; Gemini deals with a subsequent purchaser of bundled consumer vehicle debt. The same issue presents in cases of subsequent purchasers of bundled consumer mortgage debt.
The issue with each arises when the subsequent purchaser sues on an individual’s debt and moves for summary judgment. The purchaser bears the burden of showing it is the real party in interest because it actually owns the individual debt.
The affidavits submitted on this point are often similar to those in the Palisades and Gemini cases. They contain sweeping declarations of personal knowledge of account records and sales records from previous owners of the debt bundle. Both Palisades and Gemini reject such conclusory averments as inadmissible evidence, and therefore a failure to make the required prima facie showing.
Gemini also makes it clear that it is verboten to simply show transfers of debt bundles without lists of individual debt within the bundle.
Rather, a subsequent owner of a consumer debt bundle must show it actually owns the specific individual’s debt which is contained in the bundle.
It is the least a creditor can do if it sues to collect that individual’s consumer debt.
Judge Jean DiMotto retired in 2013 after 16 years on the Milwaukee County Circuit bench and now serves as a reserve judge. She also is of counsel with Nistler Law office SC. She can be reached at firstname.lastname@example.org