What Is Chain of Title in a Debt Collection Lawsuit?
This article is for educational purposes only and is not legal advice. ProveItToolkit.com is not a law firm and does not give legal advice. For advice about your specific case, talk to a licensed attorney in your state.
You opened a credit card with a bank you know. Now a company you have never heard of says it owns that debt and is suing you for it. Chain of title is the name for the proof that is supposed to connect those two facts.
Chain of title means the complete paper trail showing how a debt traveled from the original creditor, meaning the bank or lender you first did business with, to the company now suing you. Every step along the way is a sale. Every sale should have records. Put all those records together in order and you have the chain.
Why does a chain of title exist at all?
Old debts get sold. When a credit card account goes unpaid long enough, the bank writes it off as a loss on its books. That accounting step is called a charge off. A charge off does not erase the debt. The account still exists, and the bank can sell it.
Companies called debt buyers purchase these charged off accounts in large batches, then try to collect the full balance. The Federal Trade Commission, the government agency that studied this industry in a 2013 report, found that the debt buyers in its study paid an average of about 4 cents for every dollar of face value.
Sometimes a debt is sold once. Sometimes it is sold again, from one debt buyer to another, and then again. Each sale adds another link to the chain, and each link is another place where paperwork can go missing.
What chain of title documents look like
A few kinds of records make up a chain of title:
A bill of sale is a short contract recording that a batch of accounts was sold on a certain date. It often covers thousands of accounts at once and never mentions any one person by name.
A purchase agreement, sometimes called a forward flow agreement, is the master contract that sets the terms for those sales.
Account level data is the electronic file, like a spreadsheet, listing the individual accounts in the batch with names, balances, and account numbers.
Underlying account documents are the records from the original creditor, such as monthly statements or the signed card agreement.
In its 2013 study, the FTC reported that debt buyers received the accounts mainly as electronic data, and that sellers often did not hand over the underlying account documents at the time of sale. Getting those documents later sometimes cost extra or was not possible at all.
Why the chain can have gaps
A generic bill of sale does not prove that your account was in the batch. That proof depends on the account level data matching up, sale after sale, all the way back to the original creditor. When a debt has changed hands more than once, the company suing you needs records from every sale in the chain, including sales it was not part of.
This is not a made up worry. In 2015 the Consumer Financial Protection Bureau, the federal consumer watchdog, issued consent orders, which are formal settlement orders, against Encore Capital Group, the parent company of Midland Credit Management, and against Portfolio Recovery Associates. Among the problems described in those orders was suing consumers over debts without having the documentation to back up the claims.
Why chain of title matters in your case
In a lawsuit, the plaintiff, meaning the company suing you, carries the burden of proof. That is the legal rule that says the side making the claim has to prove it. Part of that claim is ownership. A debt buyer is not the bank you signed up with, so proving it owns your exact account is part of its case.
Here is the hard truth. When the person being sued never responds, the court can enter a default judgment, which is a ruling that you lose automatically because you did not answer. When that happens, no one ever asks to see the chain of title. The paperwork only matters when someone asks for it.
How does anyone actually see the chain of title?
Lawsuits have a stage called discovery. Discovery is the formal process where each side can ask the other side for documents and written answers. One discovery tool is called a request for production of documents, which is a written list asking the other side to hand over specific records, such as the bill of sale and the account level data covering your exact account.
Whether these tools are available in your case, what they are called in your court, and when they can be used all depend on your state and the type of court you are in. Small claims courts and regular civil courts run differently. A licensed attorney in your state can tell you what applies to your specific case.
If you were just served, start here
Read the summons carefully. The summons is the court paper telling you that you have been sued, and it states the deadline to respond for your court. Response deadlines are different from state to state and even from court to court, so never rely on a number of days you read online. The deadline that counts is the one on your own paperwork.
And get real advice for your situation. A licensed attorney in your state is the only one who can tell you what to do in your specific case. Many areas have legal aid offices that help people who qualify at no cost.
Learning the process
If you want to understand how debt buyer lawsuits work before you talk to anyone, the $47 Prove It Toolkit from ProveItToolkit.com explains the whole process in plain English, including what chain of title records look like and how discovery works, with a version matched to each of ten large debt buyers. You can pick the company suing you at https://www.google.com/url?q=http://proveittoolkit.com&source=gmail&ust=1788347212391000&sa=E. It is education, not legal advice, and it is written for someone holding a summons for the first time.
A company that sues you is making a claim. Chain of title is the proof behind that claim. Just knowing that this proof exists, and that it can be asked for, already puts you ahead of where you were yesterday.