Assignment of Debt for Collection

[Jim Frame]

I'm in discussions with a collection agency regarding a judgment that I obtained against a non-paying client about 3 years ago. I've never had to engage a collector before, and am unfamiliar with the process. The agency has asked me to sign a document titled "Consumer Assignment for Collection" that contains the following clause:

"All sums collected, in addition to face amount of claim shall be retained by assignee in addition to fees herein provided for, including all sums that may be collected as interest or attorneys fees."

This clause would seem to transfer permanently all amounts collected to the assignee. Shouldn't there be a corresponding clause or separate contract stating that the assignee will remit to the assignor the collected amounts minus the collection rate and direct expenses? I've posed this question to the agency, but thought I'd see if anyone here has been down this road before and can provide some insight.

Thanks.

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[Anthony Maffia]

The contract sounds as if you are "granting ownership" of the debt to the agency, in exchange for an up-front payment from them to you.

Not a "collect my debt" agreement for a fee.

[Jim Frame]

I followed up with the collection agency. The guy I'm working with told me that the contract does, in fact, assign all collected funds to the agency, and that they do this as protection against unscrupulous clients. He claims that the agency's 50-year business history, BBB and California Collectors Association membership, plus a recommendation from a colleague who posts here, all serve to underscore their claim that they'll do an honest job.

I don't normally trust businesses that I've never worked with to that extent, but this account is so far past due that I'm willing to give it a go. I'll let you know what happens!

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[Jim Frame]

Ignoring the spam post that brought this thread back to life, it appears that I never did "let you know what happens," so here's the rest of the story:

Once I signed the assignment agreement, the bill collector went to work. He called me a few days later and said that the guy is judgment proof, owning nothing in his own name that can be attached. He said the guy saw me coming and never intended to pay my fee. For a few years I filed the paperwork required to increase the debt by the 10% plus fees allowed by the court, but that became burdensome with little prospect for recovery, so I eventually let the matter drop. The statute of limitations having long since elapsed, this one bad debt remains the only one I've had in 30 years. And it still irks me whenever I think about it.

[CBarrett]

I am so sorry that you had to deal with this. I can't even imagine how much anger or frustration getting taken advantage of that can cause.

Thank you for sharing this and closing the loop, it's great learning opportunity for those of us who had not had to deal with it (yet).

[Jim Frame]

I can't even imagine how much anger or frustration getting taken advantage of that can cause.

Anger and frustration? Why, aside from an occasional recurrent fantasy of kneecapping the guy with a baseball bat, I hardly ever think about it.

There are ways to reduce the likelihood of this kind of loss, of course, but they all come with drawbacks:

1. Require payment in full prior to start of work. Maximum protection, minimum risk. For really small mom-and-pop jobs this can be feasible, but most commercial clients would find the requirement sufficiently bothersome to make looking for another surveyor seem less onerous. I've never asked for payment up front, though I've had a couple of clients pay it anyway on their own initiative.

2. Require payment in full prior to delivery. Same problem, with the added risk of having the client flake out anyway, leaving you out the effort and no one to pay for it. I've never actually tried this (and have no plans to do so).

3. Require a deposit or retainer prior to start of work. This is an in-between solution, but will still cause some commercial clients to keep looking. I've done this a few times for out-of-town clients who I had a funny feeling about. It's always worked out fine.

Aside from the one total burn that's the subject of this thread, I've filed suit in Small Claims Court two other times in 30 years. One was against a Planning Commissioner in a nearby town who stiffed me on a parcel map project in his own town. (He finally paid after I threatened to garnishee his wife's wages.) The other was against a friend and fellow surveyor who was having a tough time with cash flow and was too embarrassed to return my phone calls, emails and mailed invoices. That one never went to trial, when he got the summons he paid, and all was good.

A smart businessperson would probably advise religiously following one of the schemes described above. I'm too old a leopard to change my spots now, I plan to keep muddling along the same old way and hoping the odds continue in my favor.

[CBarrett]

Thanks, great advice here, I love it.

I'd like to add that I ran a drafting service for a lot of years while I was the LSIT, subbing with other surveyors. It started out of necessity during the 90's recession. I used the same principles. No matter how tiny the business may be, this is great to protect one's interests.

As an aside, while this is great, sometimes we make exceptions and there is some finesse involved. This is true in tiny, small and bigger businesses. It is a part of contract negotiation. Even where I work now where we deal with contracts ranging from few hundred thousand to several millions in survey fees, there is always some contract negotiation. Each party to the contract is going to try to protect their interests, and with larger businesses it is almost a game of, let's nudge the other guy to take on more risk and less risk for us, so... people add it to the contract in hopes the other side doesn't catch on.

Thankfully for us PM's where I work there is lot of training and education available on contract negotiation. Part of the contract negotiation is to know your client, so that you can evaluate risks, and understand their negotiation comfort zone. If it is a profitable client, you don't want to be so rigid that the contract negotiation falls apart and you lose the project over it (unnecessarily), however, you also have to understand your own (or your company risk limits) to know where the hard limit lines are. You also don't want to end up with a contract which puts you (the consultant, company owner or your company) at so much risk that your liability exposure is cost prohibitive.

It takes some client research and understanding your own operation to find those acceptable risk limits.
Much of the contract negotiation is about risk management.

Anyhow, I wanted to share those tidbits, well to share, and to reinforce my own knowledge. Part of learning is being able to explain certain concepts to others.

[ekparian]

I require a retainer upfront. Then, if I cannot get the remainder I threaten a mechanic lien on the property. If that does nothing then I follow through. It has worked a few times and I have liens on a few properties. If they ever sell I can get reimbursed. I've never tried a debt collector.

[Dave Lindell]

I once waited nine years for a judgement I won in small claims court for a measly $270.
As I was about to renew the Abstract of Judgement which expired after ten years when I got a call from the client's lawyer.
He wanted to refinance his house and my lien was first in line! It cost him $1200 after costs and interest.

[MikeT]

Sorry about this issue. That is absolutely no fun. I used a collection agency a few times many years ago and they were able to collect something but the fee was high.

Went to small claims once (24 years ago) and it wasn't worth the time involved. I have never filed a lien but have it on my contract.

We generally deal with small end residential clients so will collect a 30-50% retainer up front before scheduling any site visit and then generally collect the remainder upon delivery of DRAFT pdf of the survey. NO ACAD and no stamped/signed drawing without final payment. When pipes/stakes are set in the ground--partial payment due at site. This has worked quite well for us. I understand With commercial and government clients it can be different.