The Importance of a Well-Defined Dormant Judgments Program

Faith Braverman

The collection of dormant judgments is a hot topic in the ARM industry. This makes sense when considering the current economic environment. Delinquencies are down, placements are lower, and debt buying opportunities are at sky high prices, when they exist at all. These circumstances have compelled many creditors to look to their dormant judgment inventories for additional revenue sources.

As noted by Linda Straub Jones in a recent insideARM.com article, in addition to enhanced revenue, creditors must also be concerned about compliance issues in a time of increased litigation and regulatory scrutiny. A successful dormant judgment program begins with good information both for revenue and compliance purposes. This is only the beginning, however.

A dormant judgment inventory must be managed comprehensively and actively, ideally as a segment separate from conventional legal collections. The process should begin with judgment validation. Many creditors are shocked at the inaccuracy and staleness of their judgment information.  Oftentimes balances are incorrect, court information is inaccurate or a judgment has been vacated unbeknownst to the creditor. A thorough process that validates current judgment information is essential to avoid compliance issues.

The next step is good asset information. The problem with using even the best data sources is that they are rarely 100 percent accurate. Accuracy rates for even the best sources are rarely more than 20% and often hover around 5%. This means that a creditor who has already sunk substantial money into a portfolio in legal costs is faced with the prospect of wasting further legal costs on up to 95% of dollars expended in post-judgment procedures because of inaccurate information.

There are two ways of responding to this. The first is employing a skiptracer or asset locator to confirm POE information and while often a good solution, there are some problems with this approach. The first is it requires creditors to sink substantial additional capital into a portfolio in investigation fees. At anywhere from $50 – $200 per hit this can run into the hundreds of thousands on a sizeable portfolio. Skiptracers do not have the same economic interest as creditors either. Since they get paid by the ‘hit’ not upon the collection, they are at risk of being influenced financially rather than finding accurate information on the debtor.

The alternative approach is to seek out a firm that specializes primarily in dormant judgment validation and has the necessary means with which to fully explore every avenue in terms of lead verification. More often than not this requires a huge investment in time, investigation and capital, something which a lot of firms are unwilling to make.

Even if a creditor develops a comprehensive approach to asset location they are left with the challenge of getting maximum performance from those assets. Because of the multi-state requirements of a national judgment program, a lot of expertise is needed to understand the complex elements of each state. Judgment management is an expertise unto itself and will not be as effective as it can be by simply grafting it on to an existing legal management program.

In addition, maximum performance on a judgment portfolio requires constant management. Accounts must be re-investigated regularly because debtors’ circumstances change. New data and investigative approaches must be constantly developed to stay ahead of technological and societal changes.  New asset classes must be developed to maximize performance.

The benefits of a well-developed dormant judgment program are clear. Wage garnishments establish a collection curve that extends for many years once established and in order to maximize this cash flow a comprehensive approach is most effective and can double netback over conventional approaches.

Faith Braverman has been in the ARM industry for 6 years. Initially as VP of Client Services at You’ve Got Claims and in the last 18 months with Eltman, Eltman and Cooper in the same capacity, Faith’s expertise stems from helping clients manage and report on their inventory.