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EVALUATING THE CLAIM§ 2.4in payment. Actions on express or implied contracts (except those governed by UCC article 2) and any action for which there is no other specific statute of limitation must be commenced within 6 years.15 Pursuantto UCC § 2-725, the statute of limitations on a contract for the sale ofgoods is 4 years and cannot be extended by agreement of the parties, but itmay be shortened to a period of not less than 1 year.[2.4]V. JURISDICTIONJurisdiction depends on whether the referred claim is a consumer claimor a commercial claim. A consumer credit transaction is defined by CPLR105(f) as a “transaction wherein credit is extended to an individual and themoney, property, or service which is the subject of the transaction is primarily for personal, family or household purposes.” The federal Fair DebtCollection Practices Act (FDCPA) requires that all actions based on consumer credit transactions must be commenced either in the county wherethe contract was signed or the county where the debtor resides.16 In commercial claims, the attorney should review the entire contract for a forumselection clause. Depending on the particular language used, the jurisdiction agreement may be exclusive or permissive. An exclusive agreementmandates that any action based upon the contract must be brought in aparticular state’s courts, whereas a permissive agreement allows an actionto be brought in a particular state’s courts. In addition to the loss of timeand money caused by commencing an action in an improper court, thecreditor’s attorney whose case is dismissed for lack of jurisdiction alsofaces the risk of the action being time-barred. Similarly, the attorneyshould also examine the contract for mandatory arbitration clauses thatmay likewise result in dismissal of an action and raise time-bar concerns.Whenever possible, the attorney should commence the action in citycourt, which has jurisdiction over actions and proceedings for the recovery of money and actions involving chattels, and whose filing fee is 45compared to 210 to commence an action in supreme court. However, inorder to have jurisdiction, the amount sought to be recovered must be lessthan 15,000 (exclusive of interest and costs).17 In addition, pursuant toUniform City Ct. § 213(a), either plaintiff or defendant must (1) be a resident of the city or of a town contiguous to such city, (2) have a regularemployment within the city, or (3) have a place for the regular transaction15CPLR 213.16FDCPA § 1692(i).17N.Y. Uniform City Court Act § 202 (Uniform City Ct. Act).17741

§ 2.5COLLECTIONS AND ENFORCEMENT—2D EDof business within the city. Pursuant to Uniform City Ct. Act § 213(b), acorporation, association, or partnership is deemed a resident of the city ifit has an office or agency or regularly transacts business in the city.[2.5]VI. PLEADING CONSIDERATIONSIf a review of the creditor’s documentation reveals that the creditor sentinvoices and statements to the debtor, and the debtor failed to objectwithin a reasonable period of time, an independent cause of action for anaccount stated should be plead.The attorney should also thoroughly review all of the creditor’s documentation for attorney fee provisions. These may be found in credit applications or the Note. Although N.Y. Personal Property Law § 402(6-a)declares null and void any provision in a retail installment contract whichprovides for the payment of attorney’s fees incurred in a legal action orproceeding for collection, the Motor Vehicle Retail Installment Sales Actallows for the payment of attorney’s fees “not exceeding fifteen percent ofthe amount due and payable under such contract where such contract isreferred to an attorney not a salaried employee of the holder of the contract for collection, plus the court costs” if the contract so provides.18 Subject to contract limits, courts customarily award 25% of the principalbalance due as “reasonable” attorney’s fees. In addition, credit applications or agreements can also provide for a higher interest rate, as opposedto the statutory 9%.1918Personal Property Law § 302(7).19CPLR 5001, 5004.18742

CHAPTER ELEVENEVALUATING COLLECTIONPROSPECTSStephen J. Schop, Esq.**The author wishes to acknowledge the prior contributions Ronald Forster, Esq., and Jack L.Getman, Esq., as past authors of this chapter.743

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EVALUATING COLLECTION PROSPECTS§ 11.0[11.0] I. INTRODUCTIONThe entry of a judgment by itself usually does not result in the judgment debtor appearing voluntarily and satisfying the judgment. If thejudgment is recorded or transcripted in the county in which the judgmentdebtor has real property, the judgment may result in a lien against the realproperty, but it does not produce cash for your client. It is the attorney’sresponsibility, in conjunction with the client, to evaluate the prospects ofcollecting the judgment. Since enforcement proceedings may be expensive in the way of filing fees, service of process, and examinations, it isimportant to evaluate whether the judgment debtor has nonexempt assetswhich can be levied upon or which otherwise are collectible.In order to do this, it is necessary to obtain as much information as possible about the judgment debtor and his or her assets. The techniques arereferred to as “asset locating” and “skip tracing.” If the whereabouts of thejudgment debtor are known, then the total collection process will bedirected toward locating those assets which can be subject to enforcementand satisfaction of the judgment. The attorney must be familiar with thekinds of property that are exempt from execution. Article 52 of N.Y. CivilPractice Law & Rules (CPLR) provides the mechanism for locating assetsand enforcing a money judgment, beginning with the identification ofproperty that is subject to enforcement.1Assets are broken down into debts and property against which a moneyjudgment can be enforced. The debt must be past due or yet to becomedue, certainly or upon demand of the judgment debtor, such as a timedeposit or checking or savings account at a bank. It matters not where thedebt was incurred nor whether it was to or from a nonresident. A cause ofaction capable of being assigned or transferred is a debt whether itoccurred within or without the state. Similarly, any property which couldbe assigned or transferred, vested or not, or consisting of a present orfuture right, can be the proper subject of the enforcement of a moneyjudgment. The debt or property must not be exempt from application tothe satisfaction of the judgment.Civil Practice Law & Rules 5205 covers personal property exemptions,and CPLR 5206 covers real property exemptions. Section 5222(e) of theCPLR mentions other exemptions under state and federal law.1CPLR 5201(a).229745

§ 11.0COLLECTIONS AND ENFORCEMENT—2D ED.Once all the exemptions are considered, a multitude of other assetsremain that are subject to enforcement and satisfaction of a judgment.However, there have been some interesting interpretations of CPLR 5201.In Glassman v. Hyder,2 the Court of Appeals held that future rental payments due to the judgment debtor are not a debt and not attachable, assuch rental payments are contingent with no certainty of payment. Notwithstanding this legal determination, judgment creditors across the statecommonly ask the sheriff to execute upon rents as they are paid. TheCourt of Appeals seemed to base its decision solely upon paragraph (a) ofCPLR 5201, which deals with debts, and did not consider paragraph (b),which deals with property. If future rents are not considered debts becausethere is no certainty they will become due, why should they not be considered a property right that could be assigned or transferred? This seems tomake more sense. Future rents certainly have value and, therefore, shouldbe applicable to the satisfaction of a judgment as they become due.Since a judgment creditor can execute against the real property, theissue of whether or not you can execute against the rent becomes moot.3The problem, however, in proceeding against the property is that it maynot be economically feasible. The amount of the judgment would control how to proceed. A real property execution can be costly and timeconsuming. The costs of advertising and sheriff’s fees are substantialeven though recoverable. This method is not recommended where thejudgment is relatively small. Furthermore, many courts in New York arereluctant to sell real property to satisfy a judgment, particularly if it alsohappens to be the judgment debtor’s residence.You must petition the court to permit such a sale where the value of thehome exceeds 50,000 above liens and encumbrances. Homes with avalue under this amount are exempt from execution. The courts have beenknown to invoke protective orders against a sale where the debt is disproportionate to the value of the property and may also require that otherremedies be exhausted first.4Of course, under CPLR 5228 a receiver may be appointed who couldcollect the rents and apply them toward the judgment. Again, this wouldbe time-consuming and require a lot of paperwork. Certainly it would be2Glassman v. Hyder, 23 N.Y.2d 354, 296 N.Y.S.2d 783 (1968).3David D. Siegel, McKinney’s Practice Commentary, CPLR 5201(a) (1997).4Gilchrist v. Commercial Credit Corp., 66 Misc. 2d 791, 322 N.Y.S.2d 200 (Sup. Ct.,Nassau Co. 1971).230746

EVALUATING COLLECTION PROSPECTS§ 11.0preferable if the rents could be executed against like other property. In1976, the Court of Appeals, in Abkco Industries, Inc. v. Apple Films Inc.,5may have decided just that. This case involved a licensing agreementbetween a British company and a New York company to market a filminvolving the Beatles in the United States. Under the agreement, a percentage of the profit was to be paid to the British firm. The court brushedover the contingent nature of the “debt” and treated the agreement asproperty capable of being assigned and subject to attachment. In reachingthis conclusion, the court reviewed its decision in Glassman v. Hyder.6The real property in the Glassman case was located in New Mexico, andsince the situs of a leasehold of real estate is at the location of the realestate, the property was beyond the reach of New York courts, and onlythe question of future rents as debts could be considered.It now appears possible that future rents could be reached as propertyunder CPLR 5201(b) so long as the situs of the real estate is within thejurisdiction of the New York courts. It is clear that even if levy and execution cannot be maintained under CPLR 5201(a) dealing with contingentdebts, it can be maintained if the debt can be treated as property.Property can be either real or personal. However, shares in a cooperative apartment, although not actually real property, are treated as such forpurposes of the homestead exemption pursuant to CPLR 5206. Unlike thecondominium, which is treated as real property for all purposes,7 onewould execute on a co-op by levying upon the shares of stock. The homestead exemption of 50,000 above liens and encumbrances remains ineffect for one year after payment to the judgment debtor. If the judgmentdebtor receives money as a result of a surplus money proceeding after amortgage foreclosure, there is no exemption. The surplus money becomespersonalty and is subject to execution at any time thereafter.8Regardless of how property is classified, it must be found first in orderto utilize any one of a number of judgment enforcement proceedings provided for under CPLR Article 52. In order to do this, you must use all ofthe available information at your disposal. The information you obtain539 N.Y.2d 670, 385 N.Y.S.2d 511 (1976); cf. Alliance Bond Fund v. Grupo MexicanoDe Desarrollo, 190 F.3d 16 (2d Cir. 1999) (applying Abkco holding to a case involvingU.S. investors seeking to recover on defaulted Mexican construction notes).6Glassman, 23 N.Y.2d 354.7N.Y. Real Property Law § 339-G.8First Fed. Sav. & Loan Ass’n of Rochester v. Brown, 78 A.D.2d 119, 434 N.Y.S.2d 306 (4thDep’t 1980).231747

§ 11.1COLLECTIONS AND ENFORCEMENT—2D ED.should lead to either possible assets or the realization that the judgmentdebtor is judgment proof and the claim is uncollectible for all practicalpurposes. A check of the bankruptcy filings in the debtor’s district isimportant. If the debtor has filed during the last seven years, he or shecannot file now to avoid enforcement of the judgment.The amount of effort put into collecting really is determined by thereward to be gained. The larger the debt, the greater the effort that can bemade and justified economically. Realistically, and unfortunately, amajority of claims will go unpaid, and a substantial number of judgmentswill not be satisfied. This is especially true when a claim or judgmentoriginated as a retail rather than a commercial claim. To a collection lawyer, a retail claim is made against an individual, whereas a commercialclaim is made against a business. Retail claims generally consist of sometype of consumer credit transaction. Commercial claims usually arisefrom nonpayment of goods or services used in connection with a business,and they probably are contested more often than retail claims. A judgmentagainst a commercial establishment that is still doing business shouldpresent no problems unless the assets are not subject to levy or are inconsequential as compared to the debt. An example of this would be a realestate office with just a few desks, chairs, filing cabinets, and a typewriterthat may be covered by a security agreement or lien. In such a case, effortswould be turned toward examining the debtor’s books and records to confirm the existence of cash accounts and equivalents as well as accountsreceivable. The real problem lies in tracking down the assets of individuals who are mobile and uncooperative and whose assets are not apparent.To do this, one should always begin with the client’s file.[11.1] II. THE CLIENT’S FILENearly every creditor has made some effort to collect a past-dueaccount before turning it over to a collection agency or an attorney forsuit. It is important to obtain any documentation that may be in the file.Often, the client has personal knowledge of the debtor and knows wherehe or she banks or works. There may be a credit application which hasinformation about assets and income. This is a good starting point, even ifthe application is very old and may not contain current information.Credit applications usually yield information about places of employment; banks; other income; home telephone numbers; Social Securitynumbers; and relatives’ names, addresses, and telephone numbers. TheSocial Security number is a very important means of identification, especially if the debtor has a common name or was a single woman who isnow married and using a different name. It also is useful in obtaining232748

EVALUATING COLLECTION PROSPECTS§ 11.2credit bureau reports (although it is not required for that purpose). Wherethe debtor is a “skip” (no longer at his or her last-known address), contacting relatives can be useful in helping to locate him or her. Calling an oldtelephone number can also be fruitful. Often a debtor’s residence is occupied by a relative or someone else who knows where he or she is, and adebtor’s ex-spouse often will be happy to provide his or her whereabouts.[11.2] III. PERSONAL CONTACTPersonal contact with the debtor should be attempted. Start with thewhite pages of the local telephone directory. If there is no listing, use thetelephone number in your client’s file. If you happen to make contact withthe debtor, first ascertain that the debtor is not represented by counsel andalways start the conversation by asking if there is any reason why thejudgment has not been paid. If the debtor is willing to talk, be willing tolisten. Assuming that the debtor is exempt from execution because ofbankruptcy or receipt of public assistance, the conversation should bedirected toward his or her income and employment. Any informationreceived voluntarily will result in time and expense saved.A common reason debtors give for why they have not paid their debtsis they have no money left after paying for necessities. Explore the possibilities of obtaining the resources with which to pay a judgment. Theremay be life insurance upon which money can be borrowed at a relativelylow interest rate. If the debtor is employed, he or she may be able toborrow from a credit union. Sometimes debtors feel overwhelmed by thenumber of debts they are carrying, so they ignore all of them. An attorneymight suggest the feasibility of a consolidation loan to a debtor. Somecompanies will extend credit to a person for the purpose of paying allother judgments and delinquencies, especially if the debtor’s salary andlength of employment warrant consideration. If practical, a consolidationloan would allow the debtor to make one monthly payment, and the creditor would be paid at once. This would be preferable to filing an incomeexecution that requires follow-up with the sheriff or marshal and receivingperiodic payments, provided there are no prior garnishees ahead of you. Itis important to recognize that although the direct approach may yield positive results, there is a risk that a debtor may elect to file bankruptcy.[11.3] IV. THE COLE DIRECTORIES ANDOTHER SOURCESThe more knowledge gathered about a debtor, the greater the chance ofcollecting a debt. One of the greatest tools for locating and obtaining233749

§ 11.3COLLECTIONS AND ENFORCEMENT—2D ED.information about a debtor is a Cole directory.9 Cole Information Servicespublishes a series of local directories broken down by boroughs in NewYork City and by counties outside New York City. A Cole directory combines an alphabetical street directory, including address numbers, with areverse telephone directory. A listing for a street address includes thenames and telephone numbers of persons who live at that address. Thedirectory also indicates if there is no telephone number or a nonpublishedtelephone number. A listing for a telephone number indicates to whom thenumber is assigned and his or her address.You can also find the names and telephone numbers of your judgmentdebtor’s neighbors using a Cole directory. Neighbors can be a great sourceof information. This is especially true in a small community. Other valuable information supplied in a Cole directory is a wealth code which designates the type of income area in which the debtor lives. People who livein high-income areas generally have more assets subject to execution. Thedirectory also lists the year when a listing first appeared, which couldindicate a debtor’s stability and how well known he or she might be. If heor she has lived in a multiple dwelling for a long time, the landlord maybe good source of information. Businesses and cross-streets are also indicated in Cole

211(b) (CPLR), judgments in New York State have a 20-year statute of limitations. This section creates a conclusive presumption of payment if 20 years have elapsed from the time the judgment was docketed, except where there is (1) a written acknowledgment of indebtedness signed by the person to be charged or (2) a payment of all or part of the .