Value of principle as a basis for compounding interest and fees

[pipeguy]

There was an interesting story about a piece of property (an Island) that ran in the local news last month. I would like the myFICO community to voice their opinion on what the current "VALUE" is for this piece of property. I'll write a follow up article that will outline what I think is an important principle concerning assigned charge off accounts in a couple of days once I get a few opinions as to the value of this property. 

The three primary choices are $2500, $10,000 and $477,000.

http://www2.insidenova.com/news/2012/feb/20/12/sale-island-occoquan-bay-mysterious-history-ar-170260...

Mods: Please give me a little latitude here, this is (or will be) on topic.

[fused]

[llecs]

Prime real estate!

I think the valuation is appropriate, when comparing the sq footage of the tiny island in relation to other waterfront property in the DC area.

As to the mystery, I vote for a WWII-era construction. [Up the Chesapeake] is Fort Washington and I bet the island was once used as a lookout, as was the Fort during the war. The fear was the Germans would come up the Potomac to DC. **runs off to look at old aerial photos**

[pipeguy]

The reason I posted this story, other than its rather amusing to read, is that I see a great parallel in the valuation of the "real property" in this story with the declared value of collection debts.

In the story the property was purchased for $10,000, it is currently valued by the county for tax purposes at $2500 and yet the asking price is $477,000 (because the seller says that is the amount her ex-husband owes her as if that's a good enough reason). Using an easy to understand number of say $1000 of debt you own on a charged off credit card, this debt is sold by the original creditor for $50 or so (and a corporate tax write off), then the collection agency will report and attempt to collect $2000+ once it's in collection status including "interest fees and other charges".

I see over and over on myFICO where debtors will pay the inflated value just to remove the tradeline, especially when a new mortgage in pending. I also see where default judgments are granted using the inflated value as a basis with additional charges piled on such as court costs, attorneys fees, additional interest and judgment collection fees. The BBB report on debt collectors for 2011 showed 47% of all suits result in default judgments. A study of the local county general district court records show judgments (including default judgments) at a much higher rate of at least 75%. I have also sat in General District court just to watch and very very few defendants will actually fight back for any reason, the least being the inflated amount of the debt.

It is my position that interest, fees and other charges are governed by the original contract (agreement and terms) between the original creditor and the debtor. This is the same concept the CAs use to justify their inflated value using the assignment clause of the original agreement. What I disagree with is the value of the principle being assigned once it is charged off because in my opinion the value of the actual principle once sold is the selling price not what it was worth "10 years ago when I bought the land" (before charge off) nor is it worth an inflated figure based on "that's what I value it at" (the $477,000 land figure).

I've done a lot of research on this theory including looking into regulations for everything from Regulation Z to Unjust Enrichment to basic contract law but I don't want to pontificate with a 10,000 word posting, so I'll respond to this thread with various topics of relevance a little at a time if there is any interest.

[buildingitbackup]

This is fascinating. Good read.

[Anonymous]

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@pipeguy wrote:

I have also sat in General District court just to watch and very very few defendants will actually fight back for any reason, the least being the inflated amount of the debt.

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WAY WAY Back in the day when I worked in the courtroom, I saw NO OPPORTUNITY given to the defendants to speak up or fight back.  Only those who had eloquent and expensive legal counsel representing them ever had a voice.  Generally speaking, the average joe does not have everyday knowledge of the workings of the law or how things are conducted in court, they are nervous and scared -- those poor folks can't get their knees to quit shaking much less formulate an articulate argument for themselves.

[pipeguy]

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@Anonymous wrote:

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@pipeguy wrote:

I have also sat in General District court just to watch and very very few defendants will actually fight back for any reason, the least being the inflated amount of the debt.

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WAY WAY Back in the day when I worked in the courtroom, I saw NO OPPORTUNITY given to the defendants to speak up or fight back.  Only those who had eloquent and expensive legal counsel representing them ever had a voice.  Generally speaking, the average joe does not have everyday knowledge of the workings of the law or how things are conducted in court, they are nervous and scared -- those poor folks can't get their knees to quit shaking much less formulate an articulate argument for themselves.

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I remember the first speeding ticket I fought in court (yes I won), my knees were shaking so bad I could hardly stand up and yes any person that is not used to court is pretty nervous. Virginia district court, where small debt suits like credit card judgments are heard, is fairly "public friendly". This doesn't mean you are going to be Perry Mason cool facing down the judge, but it does mean you get your day in court "pro se" if you choose to defend yourself. The apposing counsel is usually some local hired paper pusher, not a trial lawyer who really has no desire to go to trial and usually has no support for your-his case, he's there to get default judgments.

Read this tread and you'll see how Virginia works if you go in with fact and fight back (hopefully): 

http://ficoforums.myfico.com/t5/General-Credit-Topics/I-m-being-sued/td-p/1168489/highlight/true/page/2

[pipeguy]

There doesn't seem to me much (any) interest in this subject (the actual value of charged off principle) so I guess I'll just go back to reading the msg boards.