Consumer Debt Litigation (mostly Texas): NCSLT Trust Documentation

NCSLT Trust Documentation

NATIONAL COLLEGIATE STUDENT LOAN TRUSTS
COLLECTION LITIGATION TEXAS

WHO FILES NATIONAL COLLEGIATE TRUST COLLECTION ACTIONS IN TEXAS?

Two law firms have been filing collection suits on behalf of National Collegiate Student Loan Trusts in Texas: Michael J. Scott’s law firm and Javitch Block LLC. Both law firm’s pleadings have evolved, but Scott’s are of much better quality.

Initially, Javitch petitions, filed by Marc A. Melamed or Jacob M. Figelman were in courier font and poorly formatted, and even lacked required elements, such as case type information under the Expedited Action Rule and allegations regarding the chain of assignments, i.e. the fact that the Trust appearing as plaintiff is not the original creditor. The most recent versions of the standard pleadings include allegations regarding the chain of title. But even the improved version of Javitch's pleadings still equivocates as to the relevant facts, and the standard language does not necessarily match with the attached documents. See examples of documents and annotations below.

Nicole Hillman, a lawyer from third law firm, ELTMAN LAW PC, has been filing garnishments on debtors' bank accounts to collect on judgment previously entered against them. Many of these were obtained by Anh Regent, a lawyer who previously handled lawsuits for the Trusts, but no longer does so. Both Regent and Scott sought and obtained hefty attorney’s fees in these collection cases, but neither one of the two firms that were handling new collection suits for the Trust in 2017 pleaded for attorney’s fees.

WHAT LOAN DOCUMENTATION IS ATTACHED AT THE PLEADING STAGE, AND WHAT DOES IT SHOW?

The two law firms' pleadings differ substantially in appearance and substance, but both attach similar documents to their petitions. These attachments include, at the minimum, the signature page (SP) of the student loan contract and the Note Disclosure Statement (NDS). These two documents also serves as the source of the data shown in the caseload composition exhibit below. In some cases, Scott also attaches a copy of the relevant Pool Supplement. Hotlinks to the these documents for the various trust are also provided further below on this page. The latest edition of the standard Javitch Block petition mentions both the Pool Supplement and the Deposit and Sale Agreement, but neither is attached even though the petition refers to the latter as Exhibit C.

In almost all cases, the Signature Page (SP) is an image of one page of several that the applicant faxed back to the number he or she was given when he applied for the loan. It contains the fax header with the date, and it also contains an archiving stamp (document control number or code) at the bottom. The additional pages of terms and conditions (typically 3 pages of 4) are almost never attached to the SP, but may appear later in the litigation when a motion for default judgment is filed, or a business records affidavit in preparation of trial. Sometimes, these pages have the same archiving stamp character string (see example below). Other times, they do not.

The Note Disclosure Statement (NDS) shows the interest rate as an APR (percentage), and reveals the amount of the origination fee. The APR on the NDS is always higher than the rate shown in the box containing loan information on the signature page because that box shows the interest rate as the “Margin” to be added to LIBOR.

APR ON NOTE DISCLOSURE STATEMENT (above) vs. BOX ON PAGE 1 (below)

Presumably, the small print in the omitted Terms and Conditions pages explains what LIBOR is, and that the Margin is added to this financial market index, but the application paperwork made the loan appear much more favorable (cheaper) to the borrower at the time the student signed and faxed it in, compared to the terms shown on Note Disclosure Statement (NDS), which would only be issued (if at all) a few days or more than a week later upon loan approval and disbursement.

The loan documents in these collection cases themselves reflect the dubious manner in which these loans were originated.

ADDITIONAL COST OF CREDIT FRONT-LOADED (ADDED TO PRINCIPAL LOAN BALANCE AT INCEPTION)

The dollar amount of the origination fee would also be higher than the percentage shown on the Signature page, though that is not so obvious. One would have to the take the amount of “prepaid finance charge” shown on the bottom of the page and divide it by the disbursement amount, and then compare the percentage to the origination % on the Signature Page (SP). In our example here, the disclosed percentage on Page 1 was 10.50%, and the effective percentage would be $2,581.01 / $22,000.00 = 11.73%.

Origination Fee of more than 10% of amount paid to borrower(s)

Additionally, the dollar amount of the origination fee would be added to the amount actually disbursed, meaning that the borrower owed quite a bit more than the cash proceeds of the loan from day one, and interest would start to accrue based on that larger amount ("Amount Financed plus Prepaid Finance Charge"). So, on an annualized based, the effective APR relative to the net amount received would be even higher than what appears on the NDS.

EVIDENCE OFFERED AS PROOF OF ASSIGNMENT, TRUST'S OWNERSHIP OF LOAN

The only chain-of-title proof attached to initial pleadings in NCSLT cases is the occasional “Pool Supplement” for the particular program lender, the First Marblehead Corporation (FMC) and the National Collegiate Funding LLC. The latter was the Marblehead subsidiary that formally sponsored the securitization. The document is called Pool Supplement because it relates to the underlying Note Purchase Agreement between FMC and the program lender (which it supplements) and the Pool refers to the particular package of loans to be transferred. But the Pool Supplement evidences only one step in the multi-step process involving in the securitization transaction. Most Pool Supplements do not transfer any loans to any Trust directly. The actual transfer to the Trust is accomplished through a Deposit and Sale Agreement (DASA).

There is accordingly a missing link in the chain of title. But this is not a problem at the pleading stage because Texas law does not require an assignee to prove standing at the outset. At that point, allegations supporting standing suffice.

The chain-of-title and proof-of-assignment issue becomes relevant when the lawsuit is contested and the Trust is held to its burden of proof. At that point, the Trusts' attorney routinely offer additional documentary evidence attached to an affidavit signed by an employee of Transworld Systems, Inc. (TSI).

Even when the collection suit is not contested, however, some evidence of ownership is usually offered with the motion for default judgment so as to better protect the judgment should it later be attacked by post-judgment motion, appeal, or bill of review.

WHAT OTHER PROOF IS OFFERED IN SUPPORT OF JUDGMENT?

In Texas, the Trusts' attorneys typically try to prove their private student loan collection case with an AFFIDAVIT AND VERIFICATION OF ACCOUNT, which purports to be either a default judgment affidavit or a business records affidavit, depending on the context in which it is filed or offered in evidence.

It will generally have the following attachments: A one-page document that purports to certify that TSI is the sub-servicer for the loan and therefore qualified to offer evidence, the Signature Page (SP)(typically Page 1 of 4, but sometimes the borrower's signature is located on page 2 or on the last page of several pages), the additional Terms and Conditions pages (Pages 2-4), a Pool Supplement (PS), a Deposit and Sale Agreement (DASA), a printout of the accounting records from PHEAA/AES, and a summary of account information prepared by TSI that also shows how additional interest was calculated based on LIBOR after the loan was assigned to TSI for litigation. The latter document is titled LOAN PAYMENT HISTORY REPORT and generally has a date that post-dates the date the suit was filed.

In older cases (including cases reactivated for garnishment of debtors' bank account), the entity that prepared these affidavits was NCO, and there was no certification exhibit. The affidavits are nevertheless very similar. Affiants and notaries would regularly switch duties and operate in both capacities. See blog post on - NCO / TSI robo affidavits.

ILLUSTRATION OF VARIATION IN
DOCUMENTS ATTACHED TO ORIGINAL PETITIONS

The documentation attached to the Original Petitions is shown in the right-hand column
NCSLT collection cases filed in July-Aug 2017 in Harris County

LINKS TO SEC-FILED TRUST-RELATED DOCUMENTS

INCLUDING POOL SUPPLEMENTS AND DEPOSIT & SALE AGREEMENTS

COMPOSITION OF NATIONAL COLLEGIATE STUDENT LOAN CASELOAD BY TRUST, LENDER, PROGRAM, SCHOOL, AND AMOUNT

IN COLLECTION CASES FILED IN HARRIS COUNTY, TEXAS, IN 2017

Composition of NCSLT Caseload (Harris County 2017)


TRUST	LOAN PROGRAM	PROGRAM LENDER	SCHOOL	Loan Amount
2003-1	Education One Undergraduate Loan	Bank One, N.A.	SAN JACINTO COLLEGE - CENTRAL	$20,000.00
2003-1	Education One Undergraduate Loan	Bank One, N.A.	UT AUSTIN	$30,000.00
2003-1	Enlighten Private Education Undergraduate Loan	Charter One Bank, N.A.	WEST TEXAS A&M UNIV	$30,000.00
2004-2	One Education One Undergraduate Loan	Bank One (JP )	SAN JACINTO COLLEGE - SOUTH	$20,150.00
2005-1	Education Maximizer Undergraduate Loan	BANA	SAM HOUSTON STATE UNVERSITY	$10,000.00
2005-1	Education One Undergraduate Loan	JPMChase	SAM HOUSTON STATE UNVERSITY	$7,500.00
2005-2	One Education One Undergraduate Loan	Bank One (JP )	North Harris CC	$16,000.00
2005-2	Education One Undergraduate Loan	Bank One (JP )	ROCKFORD COLLEGE	$15,000.00
2005-2	Education One Undergraduate Loan	Bank One (JP )	SAM HOUSTON STATE UNVERSITY	$12,500.00
2005-3	TERI Undergraduate Loan	BANA	UNIV OF NORTH TEXAS	$11,000.00
2006-2	Education Maximizer Undergraduate Loan	BANA	U OF ST THOMAS	$15,000.00
2006-2	CFS Private Education Graduate Loan	Charter One Bank, N.A.	MOUNTAIN STATE U	$25,900.00
2006-3	Education One Undergraduate Loan	JPMChase	CLARK ATLANTA U	$22,000.00
2006-3	Education One Undergraduate Loan	JPMChase	PRAIRIE VIEW A & M U	$17,300.00
2006-3	Education One Undergraduate Loan	JPMChase	UT @ SAN ANTONIO	$15,000.00
2006-4	Education One Undergraduate Loan	JPMChase	UH / CLEARL	$19,903.00
2007-1	NextStudent Undergraduate Loan	Charter One Bank, N.A.	TSU	$15,000.00
2007-1	Education One Undergraduate Loan	JPMChase	UH	$5,200.00
2007-1	Education One Undergraduate Loan	JPMChase	North Harris CC	$16,000.00
2007-1	Astrive Education Loan	One Bank, N.A.	OTTAWA U	$12,000.00
2007-2	Education Maximizer Undergraduate Loan	BANA	U OF ST THOMAS	$20,000.00
2007-2	Next Student Undergraduate Loan	Charter One Bank, N.A.	U OF PHOENIX	$11,750.00
2007-2	Astrive Undergraduate Loan	Charter One Bank, N.A.	U OF LOUISIANA MONROE	$6,000.00
2007-2	Next Student Undergraduate Loan	Charter One Bank, N.A.	UH	$8,000.00
2007-2	GMAC Bank Undergraduate Loan	GMAC Bank	UH - DOWNTOWN	$10,000.00
2007-2	One Education One Undergraduate Loan	JPMChase	UH	$3,300.00
2007-2	One Education One Undergraduate Loan	JPMChase	UH	$5,300.00
2007-2	One Education One Undergraduate Loan	JPMChase	UH	$6,000.00
2007-2	One Education One Undergraduate Loan	JPMChase	PRAIRIE VIEW A & M U	$17,300.00
2007-2	Education One Undergraduate Loan	JPMChase	TSU	$8,000.00
2007-2	One Education One Undergraduate Loan	JPMChase	GALVESTON COLLEGE	$10,713.00
2007-2	Astrive Education Loan	One Bank, N.A.	OKLAHOMA STATE U	$30,000.00
2007-3	Bank of America Private Loan	BANA	Western Connecticut State U	$10,900.00
2007-3	Astrive Undergraduate Loan	Charter One Bank, N.A.	UH - DOWNTOWN	$13,000.00
2007-3	EduCash Graduate Loan	CITIZENS BANK OF RHODE ISLAND	UH	$10,000.00
2007-3	Education One Graduate Loan	JPMChase	UH	$19,903.00
2007-3	One Education One Undergraduate Loan	JPMChase	LAMAR U	$25,680.00
2007-4	Education Maximizer Undergraduate Loan	BANA	HCC (UH crossed out)	$20,000.00
2007-4	Astrive Undergraduate Loan	Charter One Bank, N.A.	UH	$10,000.00

JAVITCH BLOCK - EXAMPLE OF PETITION & ATTACHMENTS (AUG 2017)

Even though this is an improved version, it still has numerous defects:

Alleges, in para 7, that Defendants entered into a "valuable and enforceable [sic] contract with NATIONAL COLLEGIATE TRUST (“Lender”)." – There are multiple trusts, and none of them is a lender. The attached exhibits identifies the program lender and original creditor as Charter One Bank, N.A.. There is only one defendant in this suit, therefore the plural form – Defendants - is incorrect throughout the petition.
States, in paras 7 and 12, that the Note Disclosure Statement is attached as Exhibit B. The NDS is in fact attached, but is not so marked.
States that the Deposit and Sale Agreement is attached ”along with the Schedules evidencing that transactions” as Exhibit C, but there is no Exhibit C; nor is there an unmarked Deposit and Sale Agreement or one marked with a different letter.
States, in para 14, that the “Lender” defined as the Trust prosecuting the suit “fully performed its contractual obligations by disbersing [sic] the funders [sic] to the Borrower.” -- The Trust, however, is an inert investment vehicle, not a lender or even a business in the ordinary sense of the term, and likely did not even yet exist on the dates shown on the application and Note Disclosure Statements. The Trust certainly did not “perform” by making the loan, which would have been acquired with funds obtained through the securitization transaction, i.e. the sale of the securities issued in the name of the newly created statutory trust. Interestingly, para

No Exhibit C (Deposit and Sale Agreement) - No chain-of-title evidence at all

COST OF CREDIT DISCLOSURES ON PAGE 1 (signed 3/26/2007)

TIL DISCLOSURES (dated 4/2/2007)

COST OF CREDIT AS REFLECTED ON THE SIGNED APPLICATION

(SIGNATURE PAGE)

COST OF CREDIT AS OF APRIL 2, 2007

Origination Fee in excess of 10% of Amount paid to Borrowers

JAVITCH BLOCK - EXAMPLE OF OLDER VERSION OF PETITION

IN COURIER FONT (filed Summer 2016)

Pleadings do not state that Defendant is being sued as co-signer on student loan

JAVITCH BLOCK - EXAMPLE OF TSI BUSINESS RECORDS AFFIDAVIT
WITH ATTACHED EXHIBITS

(filed January 2017 in a contested case)

with letter-designated exhibits, selections of which are reproduced in whole or part below

Affidavit signed by James H. Cummins Nov 26,2016 notarized by Dudley Turner
(the sign interchangeably either as affiant or notary public

Exhibit B is offered to establish TSI's agency for the Trust for legal actions

Exhibit C: Pool Supplement and Deposit and Sale Agreement, with "Roster" page inserted between them

Example of Roster page ("Orphan Page") placed between the

2007-2 POOL SUPPLEMENT JPMORGAN CHASE BANK, N.A.

and the DEPOSIT AND SALE AGREEMENT TRUST 2007-2

(hotlinks to these docs on the SEC site) even thought it is not part of either. The three separate documents are collectively presented as "Exhibit C"

Exhibits D through F appear to be printouts from the AES / PHEAA accounting system
These are offered to establish the genesis of the amount sued for, including the accrual of interest

Exhibit G is an exhibit created by TSI for the purpose of supporting a claim for additional interest
(accrued based on LIBOR after account assigned to TSI for collection by litigation)

JAVITCH BLOCK - EXAMPLE OF MOTION FOR DEFAULT JUDGMENT
WITH ATTACHED EXHIBITS