How Wells Fargo uses Texas courts to empty its own customers' bank accounts: By Suing Itself

WELLS FARGO BANK, NA VS. WELLS FARGO BANK, NA  

Wells Fargo regularly sues itself, styling itself both as Garnishor (Plaintiff and Judgment Creditor) and as Garnishee Bank (Defendant holding deposits of a customer/Judgment Debtor). It then agrees with itself to award all of the money from its customer's account to itself, and also agrees with itself to apportion attorney's fees to its second law firm (appearing for Wells Fargo as Garnishee) for its role in the operation.

Wells Fargo Bank N.A. vs. Wells Fargo Bank, N.A. 

All this is done through an "AGREED" JUDGMENT OF GARNISHMENT that the attorneys for both of its law firms sign off on after the account has previously been frozen through a writ of garnishment so that the customer cannot withdraw any money.

Because the judgment submitted by Wells Fargo is agreed, trial court judges routinely sign it.

In one such Wells Fargo vs. Wells Fargo case, the customer/judgment debtor obtained the help of a good consumer defense attorney and challenged the "agreed" judgment that took away his and his son's money. Wells Fargo then argued that the debtor did not have "standing" because he was not a party to the Wells Fargo vs. Wells Fargo garnishment action. The trial court ruled for the Bank.

***

Wells Fargo's two law firms see eye to eye on emptying out the customer's
Wells Fargo bank account. 

The Fort Worth Court of Appeal, however, disagreed on the standing issue, and sent the case back to the trial court, so the judgment debtor would receive a hearing. Barrow v Wells Fargo Bank, N.A., No. 02-19-00026-CV (Tex.App.-Fort Worth, Sep. 5, 2019, no pet. h.) 

In the

Court of Appeals

Second Appellate District of Texas

at Fort Worth

___________________________

No. 02-19-00026-CV 

___________________________

On Appeal from the 431st District Court

Denton County, Texas

Trial Court No. 18-8946-431

Before Sudderth, C.J.; Kerr and Birdwell, JJ.

Opinion by Chief Justice Sudderth

ADAM I. BARROW, Appellant

V.

WELLS FARGO BANK, N.A., Appellee

OPINION

Appellee Wells Fargo Bank, N.A., garnishor, filed an application for writ of
garnishment against itself as garnishee, on September 25, 2018, to collect on its
judgment against Appellant Adam I. Barrow, the judgment debtor. The writ of
garnishment issued the following day, and on October 17, Wells Fargo as garnishee
filed an answer. On November 16, Wells Fargo entered into an agreed final judgment
with itself, awarding $6,751.44 from Barrow’s Wells Fargo account to Wells Fargo,
awarding $650.00 in attorney’s fees against Barrow’s account in favor of Wells Fargo,
and assessing filing fees and court costs in the action against Barrow. On December
14, Barrow filed a motion for new trial, challenging the sufficiency of the affidavit
supporting the application and agreed judgment and asserting that some of the seized
money belonged to his 11-year-old son.

At the time the judgment was signed, no proof of service on Barrow was on
file. See Tex. R. Civ. P. 663a (providing that the judgment debtor—the “defendant”—
in a garnishment action “shall be served in any manner . . . provided in Rule 21a”); see
also Tex. R. Civ. P. 21a(a)(2) (providing that “[e]very notice required by these rules . . .
may be served by delivering a copy to the party to be served . . . in person, mail, by
commercial delivery service, by fax, by email, or by such other manner as the court in
its discretion may direct”). But in an affidavit attached to its response to Barrow’s
motion for new trial, Thomas Sellers, attorney for Wells Fargo, as garnishor, averred
that in compliance with rule 663a,1 Wells Fargo had sent Barrow the required notices
and documents by first class mail and certified mail, return receipt requested on
October 12, 2018. In its response to Barrow’s motion, Wells Fargo argued that
because Barrow was not a party to the case, he lacked standing to bring a motion for
new trial.

On January 25, 2019, after hearing argument on Barrow’s motion for new trial,
the trial court found that Barrow did not have standing. In its written order denying
the motion, which was signed on the same day, the trial court ruled, “After reviewing
the evidence, [2] the court concludes that the Motion should be denied, as Adam
Barrow does not have standing.”

In two issues, Barrow complains that he had standing to file the motion for
new trial and that the evidence was legally and factually insufficient to grant a
judgment of garnishment to Wells Fargo.

[1] On January 24, 2019, Wells Fargo filed a supplemental affidavit by Sellers,again attesting to Rule 663a service. 

[2] Notwithstanding this recitation in the written order, the trial court did not consider evidence at the hearing. After hearing only argument, the court made its oral ruling as follows,

After considering the authorities you both cited in your oral arguments
as well as your responsive brief, the Court finds that, based upon the
procedural posture of this case and the capacity in which the motion for
new trial was brought in Mr. Barrow’s name, that he does not have
standing and the motion for new trial is denied.

Garnishment is a statutory proceeding governed by civil practice and remedies
code chapter 63 and rules of civil procedure 657–679. See Tex. Civ. Prac. & Rem.
Code Ann. §§ 63.001–.008; Tex. R. Civ. P. 657–679. A post-judgment garnishment
proceeding is a quasi in rem action brought by a judgment creditor (the garnishor)
against another party (the garnishee) who holds property or funds belonging to the
judgment debtor. Bank One, Tex., N.A. v. Sunbelt Sav., F.S.B., 824 S.W.2d 557, 558
(Tex. 1992); Zeecon Wireless Internet, LLC v. Am. Bank of Tex., N.A., 305 S.W.3d 813,
816 (Tex. App.—Austin 2010, no pet.). In the garnishment action, the garnishor
seeks to have the property or funds held by the garnishee applied toward payment of
the underlying judgment against the debtor. Zeecon, 305 S.W.3d at 816.

Because garnishment was unknown at common law and is “purely a creature of
statute,” id., the Texas Supreme Court has held that garnishment proceedings “cannot
be sustained unless they are in strict conformity with statutory requirements.” Beggs v.
Fite, 106 S.W.2d 1039, 1042 (Tex. 1937); see also Zeecon, 305 S.W.3d at 816 (observing
that the supreme court has held that garnishment proceedings cannot be sustained
without strictly conforming to the statutory requirements and related rules governing
such proceedings). This is because the remedy of garnishment is “summary and
harsh.” Beggs, 106 S.W.2d at 1042.

To ensure a debtor’s due process right to not be deprived of his property
without notice and opportunity to be heard, rule 663a requires a garnishor to serve the
debtor with notice of the garnishment and of his rights to regain his property. Tex. R.
Civ. P. 663a; see also Hering v. Norbanco Austin I, Ltd., 735 S.W.2d 638, 639–41 (Tex.
App.—Austin 1987, writ denied) (noting that in 1978, the Texas Rules of Civil
Procedure relating to garnishment actions were amended in response to prejudgment
garnishment procedures that were declared unconstitutional based on U.S. Supreme
Court holdings in Sniadach v. Family Fin. Corp., 394 U.S. 337, 89 S. Ct. 1820 (1969), and
Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983 (1972)). Thus, a garnishor’s failure to
strictly conform with rule 663a’s notice requirement will result in a void judgment. See
Zeecon, 305 S.W.3d at 818–20 (holding that “failure to properly serve the debtor
deprived the trial court of jurisdiction over the debtor’s property—the res,” but
pointing out that a “mere irregularity” is waivable and will not render the garnishment
judgment void).

The supreme court has identified “three parties” to a garnishment action: (1) a
creditor (the garnishor), (2) a debtor (also referred to as “the defendant”), and (3) a
third person who possesses the debtor’s funds or owes money to the debtor (the
garnishee). 3  Orange Cty. v. Ware, 819 S.W.2d 472, 474 (Tex. 1991) (op. on reh’g).
Thus, while the judgment debtor (the defendant) is not a “necessary party”
4 to the

[3] Although the rules of civil procedure provide that the garnishment action is docketed with the garnishor as plaintiff and the garnishee as defendant, see Tex. R. Civ.P. 659, in the rules, the term “the defendant” refers to the debtor, and the garnishee is referred to as “the garnishee.” See Tex. R. Civ. P. 658–679.  

[4] Rule of civil procedure 39, the “necessary party” rule, describes the necessary party and the circumstances for joinder of a necessary party as follows:

proceeding, he is nevertheless a party to the proceeding who has rights in the process.
Hering, 735 S.W.2d at 642; see also Tex. R. Civ. P. 663a (providing the right to notice),
664 (providing the right to replevy), 664a (providing the right to have the writ of
garnishment vacated, dissolved, or modified).5

[5] Wells Fargo cites to Missouri Pacific Railway Co. v. Whipker, 13 S.W. 639, 639(Tex. 1890), as “well-established” authority for the proposition that a judgment debtor is not a party to a garnishment proceeding. We note that Whipker predates the enactment of the rules of civil procedure and the civil practice and remedies code,which govern modern-day garnishment actions, and it predates Orange County by almost a hundred years. Because the law has changed in the intervening century, we decline to follow Whipker. We also decline to follow our sister court’s holding in Mullins v. Main Bank & Trust, 592 S.W.2d 24, 26 (Tex. App.—Beaumont 1979, no writ)—also cited by Wells Fargo in support of its position that Barrow was not a party to the garnishment proceeding—because it, too, predates Orange County.

As the judgment debtor, or “defendant” in the garnishment action, Barrow had
standing to participate in the proceeding. He had standing to replevy or to file a
motion seeking to have the garnishment vacated, dissolved, or modified. See Tex. R.
Civ. P. 664–664a. But first and foremost, he had the right to notice of the

A person who is subject to service of process shall be joined as a party in
the action if (1) in his absence complete relief cannot be accorded
among those already parties, or (2) he claims an interest relating to the
subject of the action and is so situated that the disposition of the action
in his absence may (i) as a practical matter impair or impede his ability to
protect that interest, or (ii) leave any of the persons already parties
subject to a substantial risk of incurring double, multiple, or otherwise
inconsistent obligations by reason of his claimed interest. If he has not
been so joined, the court shall order that he be made a party. If he
should join as a plaintiff but refuses to do so, he may be made a
defendant, or, in a proper case, an involuntary plaintiff.
Tex. R. Civ. P. 39(a).

garnishment action. See Tex. R. Civ. P. 663a; see also Hering, 735 S.W.2d at 641 & n.3
(considering, without deciding, whether a defendant in a post-judgment garnishment
action has a due process right or merely a rule-created right to notice). On appeal,
Barrow complains of defects in service of the garnishment action.

Wells Fargo makes an interesting argument: that Barrow was required to
intervene in the garnishment proceeding to acquire standing but that it was too late
for Barrow to intervene once the agreed judgment had been signed. Whether Wells
Fargo’s approach is correct appears to be a matter of first impression. But as we see
it, Wells Fargo’s position, were we to adopt it, would create a quintessential catch-22
for defendants in garnishment actions.

In considering Wells Fargo’s argument, we note as a practical matter that
complaints regarding defective service normally occur postjudgment because that is
when a judgment debtor who has not been properly served would become aware of
the consequences of the garnishment action. To require a garnishment defendant to
intervene in a garnishment action at a time prior to acquiring proper notice of the
proceeding would render meaningless the right to notice of the proceedings in the
first place because most garnishment-action defendants would learn of improper
service only after it was too late to complain. Such a paradox in the law should be
avoided. See Whittlesey v. Miller, 572 S.W.2d 665, 668 (Tex. 1978) (explaining that its
holding “corrects a paradox in the law of this state”).

We are not inclined to create such a catch-22 for garnishment defendants, and
Wells Fargo cites no authority directing us to do so.6

[6] Wells Fargo cites to Bechem v. Reliant Energy Retail Services, LLC, 441 S.W.3d839, 844 (Tex. App.—Houston [14th Dist.] 2014, no pet.), as authority for the proposition that as a nonparty, Barrow was required to intervene in the garnishment action to acquire standing. Wells Fargo’s position appears to be based upon a misreading of one sentence in the case. In Bechem, our sister court states, “A debtormay controvert the garnishee’s answer, however, or a third party may intervene claiming an interest in the garnished property.” Id. Couched in the disjunctive, Bechem does not support the proposition that a debtor must intervene in a garnishment action to acquire standing. Furthermore, as explained above, the supreme court has identified the judgment debtor as a party to a garnishment action. See Orange Cty., 819S.W.2d at 474.

Consequently, we hold that

Barrow had standing to file a motion for new trial, to be heard on the matter, and to
offer evidence in support thereof.

The trial court erred by holding otherwise.

Having sustained Barrow’s first issue, we need not reach Barrow’s second issue
challenging the sufficiency of the evidence to support the judgment. Accordingly, we
reverse the trial court’s judgment and remand the case to the trial court to hear and
consider Barrow’s motion for new trial.

/s/ Bonnie Sudderth

Bonnie Sudderth
Chief Justice

Delivered: September 5, 2019

Texas Student Loan Collection Follies: AG Ken Paxton collects grand total of $54.12 by garnishing student loan debtor’s bank account; bank gets $600.00 for its trouble, for a total haul of $654.12

HOW THE STATE OF TEXAS SQUEEZES A FEW ROCK-BOTTOM DOLLARS 
FROM STUDENT LOAN DEBTORS 

Texas Attorney General Ken Paxton presides over a well-oiled litigation machine optimized to extract money from people who have fallen behind on payments on the state-sponsored student loans funded and administered by the Texas Higher Education Coordinating Board (THECB). 

To be sure, keeping the flow of payments coming is important to the long-time viability of the student loan system if it is to be self-sustaining (as opposed to being supported by general revenue). 

But consider this:

On February 1, 2019, the Attorney General went after one of the wayward student loan borrowers with a writ of garnishment against two banks suspected of holding funds owned by the judgment debtor:

One bank was nonsuited, presumably because the ex-student had no account there. The other one, JPMorgan Chase, reported that the customer/judgment debtor had the princely sum of $654.12 sitting in his account.

***

The Garnishee Bank wants $600 in attorney's fees 

Given the measly amount, it is reasonable to guess that the debtor is in the habit of living paycheck to paycheck, and that the sum was what’s left from the most recent pay period.

On April 2, 2019 a judgment of garnishment was duly entered for the benefit of garnishor and garnishee. The garnishee bank was awarded $600 in attorney’s fees and State recovered a net of $54.12 to be applied to the loan balance. Based on the State's application for the writ of garnishment, the amount of the underlying judgment is $45,094.00. 

Does this make sense? Even if only looking at it from a cost-benefit perspective? 

Judgment of Garnishment in THECB student loan case 

A private bank gets $600 for its rather minor trouble of having to file an answer in the garnishment action and forking over its customer’s money to a third party; the State collects $54.12 to help assure the viability of its student loan program. Meanwhile, the debtor, who had his account balance frozen, then seized, may not be able to buy food and pay bills until the next paycheck amount is direct-deposited into his checking account.

  

The student loan debtor is out $600 that did not go to reducing the outstanding debt on the judgment owed to the State, but went into the coffers of the bank that clean out his account per court order.

If you look up the case documents, the is-this-right question gets even pricklier.

Turns out the underlying judgment was signed Apr. 21, 2006. So it is more than 12 years old; it was granted for $16,232.97 plus $97.50 costs of suit with a 9% interest rate. A prior execution attempt in 2006 turned up no assets to seize.

Nulla Bona Execution Attempt in 2006 

So the Attorney General is now (in 2019) trying to collect a sum that is about three times the original judgment amount. It has been augmented greatly thanks to the much higher interest rate in 2006. In recent years the judgment interest rate has been 5%.
    

Paxton sues hundreds of former Texas college students who defaulted on THECB student loans each year at the Travis County courthouse, conveniently located a few blocks for his headquarters in Austin, Texas. Not so convenient for the ex-collegiate defendants around the state, and some beyond, but that does not really matter because they all end up with default judgments or summary judgments in any event. Even if they were to hire a private attorney to enter an appearance, it is for naught, except that it may postpone the highly predictable outcome: but only for a few months, at best. 

Writ of Execution in 2006 turned up no no-exempt assets 

   

Featured Debt Collector: Nicole Hillman, Garnishor-in-Chief for National Collegiate Student Loan Trusts in Texas

GARNISHEE .... GREETINGS 

Featured Debt Collector of the Month: Nicole Hillman, Garnishor-in-Chief of student-borrowers' bank accounts 

for the National Collegiate Student Loan Trusts in Texas 

Nicole Hillman is the attorney who has been filing garnishment actions on behalf of National Collegiate Student Loan Trust in Texas. This blawg post will show what the “paperwork” in those garnishments looks like.

But first an editorial note:

Some may think it is in bad taste to call out attorneys in this line of work publicly. I have concluded that there is nothing wrong with it, and that -- much rather -- their doings should be exposed and held up to public scrutiny and reasoned debate. It is the path they have taken. Nobody arrested them and marched them down this road.

They have chosen to make a living inflicting misery on others, people struggling to make ends meet or otherwise down on their luck.

How many student borrowers would “strategically default” on their student loans if they know it will ruin their credit for years? And how is it not rational to stop paying on student loans if your credit is already ruined and you can barely meet ordinary living expenses? Would you give preference to paying on unsecured loans and risk getting evicted for nonpayment of rent or mortgage, or having the car repossessed that you need to get to work every day?

That’s where the garnishment remedy comes in. It allows creditors to relieve borrowers of money they would otherwise spend on food, shelter, and other necessities of life.

And that’s important in a state like Texas where unsecured creditor cannot tap debtor’s wages directly.

For the financially strapped student loan obligors, whether borrower or co-signer, bankruptcy is not much of a solution to their predicament, given that educational debt is generally non-dischargeable.

Educational loans are not subject to discharge unless excepting such debt from discharge would impose an undue hardship on the debtor and the debtor's dependents. 11 U.S.C. § 523(a)(8).

The ultimate irony is when the collection attorneys themselves end up indigent or in bankruptcy. Anh Regent, for example, who until recently obtained private student loan default judgments for the National Collegiate Student Loan Trusts along with other creditors, see document samples below), or when debt collectors complain about their mortgage being foreclosed following failure to make payments on the note. Like Benjamin Sanchez, a once prolific collector of charge-off the credit card debt sold to debt buyers such as PHARIA LLC and DODEKA LLC . See 14-13-00272-CV for details, if you wish to sympathize with Ben, or indulge in a bit of Schadenfreude. Also see Sanchez verbatim below.

Texas Attorney's Woes Detailed 

After Anh Regent went South, Nicole Hillman took on the task of collecting on the default judgments he procured against student borrowers, including hefty attorney’s fees.

$250 an hour, hundreds of times, once, during Regent's prime
years of collection 

The practice of law may be a noble profession, but collection work hardly provides support for that lofty proposition. Much less post-judgment collection work.

The attorneys that opt to go into this line of business either oversee or are part of lawsuit mills.
 
They take advantage of very creditor-friendly laws and rules, and of courts that rubber-stamp default judgments and enforcement remedies. They know they are hurting people who do not have the wherewithal to defend themselves in a legal proceeding, and they know that most of them don’t have money to hire an attorney. They know that the targets of the lawsuits they file by the hundreds -- if not by the thousands -- are struggling financially, which is why they defaulted on their private student loans in the first place. Some will even say why: Because the loan servicer won’t work with them. So student loan debtors who are financially struggling work out some options for their federal loans, and stop paying on their private ones.

To be sure, some judges have check-lists or standard operating procedures in place to ascertain whether all the formal requisites for default judgments have been met, but creditors typically get default judgments anyhow. The court’s staff does some quality-control for them, like checking if the Defendant has, in fact, been served as alleged in the motion, checking if an answer is on file, and checking whether a nonmilitary affidavit has been submitted that is not already stale. Some judges make creditors’ attorneys show up in court if the motion for default judgment is found wanting. But the creditor prevails in the end. With very rare exceptions. And the courts are doing them a favor with rudimentary quality control – not to mention an exacting one -- because it makes their judgment virtually unassailable. Judgments with pegged-on attorney’s fees that augment the debt by thousands of dollars even the entire default judgment process was entirely transactional and based on only a few documents spat out from a computer system overseen by lowly paid clerical staff. The modern-day equivalent of paper shufflers, except that they use office computers and now efile, rather than just processing hard-copy paperwork (in the original sense of the term) and mail. Courts routinely approve thousands of dollars in attorney’s fees for lawsuits on which low-level non-attorney staff has spent minutes. They do so because the attorney on the case has sworn that their law firm takes cases on contingency and that $$$$ of dollars is reasonable or this case. Default judgment signed. Case closed.

Concededly, trial judges do not have much discretion to deny default judgments, no matter how unfair, because the rules themselves are stacked against the Defendants.

In Texas, a breach-of-contract plaintiff does not even have to attach the contract to the pleading, for example. In the default judgment context, the allegations in the pleading are deemed admitted, just not the damages. And the damages can be “proven up” by affidavit with a copy of the “instrument” attached. The affidavits submitted in support of default judgment are automatically acceptable if notarized because no one is present to challenge them, and the judge would not know it if the affiant is lying or making mistakes, unless the testimony is actually at odds with the attached documents. That happens fairly regularly, but to catch such error would require a more meticulous review than courts with high volume of business don’t have the time and resources for.

Especially not when the case is a run-of-the mill case that involves a comparatively small amount of money. Since the defendant didn’t get a lawyer to fight the lawsuit, he or she probably won’t hire a lawyer to appeal or otherwise complain of the default judgment, so even if the motion is not up to snuff, the likelihood of the resulting judgment for the creditor being challenged is small. The creditor’s attorney has already submitted the judgment. All the judge has to do is sign off on it. The chance of getting reversed on appeal approach nil.

And in JP courts, the amount is low by definition because those courts' jurisdiction is capped at $10,000. If there is an appeal, it won’t ever result in a published opinion reversing the lower court because the appeal will result in trial de novo in the court of record to which the appeal is taken. No JP court judgment is ever overturned on a finding that the justice of the peace committed legal error or abused his or her discretion.

For post-judgment writs of garnishment, a court order is not even needed. A mere application suffices. The writ will issue as a matter of course, and when served on the financial institution, will typically freeze all money in the account except possibly money that the bank can identify as protected by federal law.

Texas does not allow wage garnishment directly (except for child and spousal support), but it allows seizure of money deposited into a bank or a credit union accounts. So, all employed debtors who receive their pay via direct deposit are at risk of having ALL of their most recent earnings taken: All amounts remaining in the account from their last pay check as of the day the day the bank is served with the writ, and all additional amounts that arrive while the bank’s lawyer is preparing to answer the writ issued on application of the garnishor’s attorney.

In the case of National Collegiate Student Loan collection, the attorney who causes this to be done to them is Nicole Hillman. Texas Bar Card Number 24055666, licensed in Texas since 11/03/2006.

Meager earning, meager findings: Only $589.66 in debtor's account, 
$687.66 a few days later,
Attorney Evan Moeller for Garnishee
Bank of America want $1,035 for the bank's trouble of having to answer the writ of garnishment. 

Below are more snips from documents that demonstrate what such a garnishment action looks like:

• Application for Writ of Garnishment by Trust Attorney Nicole Hillman 
• Affidavit in Support of Writ Application, sworn to by Nicole Hillman 
• Writ of Garnishment issued by the County Clerk, Harris County, Texas 
• Underlying default judgment for the Trust and undelivered notice of default judgment
• Underlying motion for default judgment by NCSLT with attorney fee affidavit by Anh Regent
• Excerpts from the student loan note and disclosure statement showing different cost-of-credit terms 

Application for WRIT OF Garnishment

Affidavit in Support of Application for Post-Judgment Writ of Garnishment
signed by Nicole Hillman for Student Loan Trust 2007-1

Writ of Garnishment

Post-judgment Wrist of Garnishment issued September 1, 2017

on Judgment in favor of National Collegiate Student Loan Trust 2007-1 in by a 

Harris County Civil Court at Law 

 NOTICE OF DEFAULT JUDGMENT WAS

RETURNED UNDELIVERED 

Apparently they had a bad address for the defendant

THE UNDERLYING DEFAULT JUDGMENT 

Default Judgment: Almost $6,000 added in "reasonable" attorney's fees 

how the "reasonable" attorney's fees compute:
$250 per hour - Total:  $5,936.63 = 23.75 hours to get a Default judgment - SERIOUSLY? non-perjuriously? 

THE SECRET SAUCE IN THE STUDENT LOAN POOL 
OR
HOW TO ORIGINATE HIGH-YIELD LOANS FOR SECURITIZATION  

Step One: Offer a moderate teaser rate of say 7.25%
(Margin over Libor) 

***  

Student Loan Application signed and faxed 12/14/2006 - 7.25 "Margin" rate and 10.5% Origination fe

Step Two: Make the Loan for a much higher rate -- how about 13.647% -- and heap on a hefty origination fee on page 2. 

***

Subprime loan-origination math: $1,749.78 origination fee = 10.5% of $15,000
Student has not graduated yet: Won't figure that $1,749.78 is 11.66% and that it's immediately added to the $15,000 and starts earning interest for the eventual investors along with the $15K.

Step Three: Hope the student will be so happy getting the check, and won't notice what happened between the signing of the loan application (here Dec 12, 2006) and disbursement (Dec. 19, 2006) until its time to start re-paying after graduation. 
Risk: Applicant might cancel and return the check otherwise. 

Step Four: Show would-be investors in Trust 2007-1 the high margins in your pool, and make them salivate for the high yields. 

Student Loan Pool Distribution in terms of Margin (interest rate above LIBOR)
From Prospectus Supplement for Investors issued by the First Marblehead Corp. prior to securitization - Full document here

A DECADE DOWN THE ROAD TAKEN 

(Former students being sued because the anticipated high yields are not materializing) 

Word of a Very Unhappy Student Loan Customer
in 2017, at the receiving end  of a collection lawsuit.
 - Different Trust, different case, same issue.  

exemplar of Answer to Writ of Garnishment
by bank of america as garnishee

underlying default judgment
obtained by anh regent 

Another Affidavit by Chandra Alphabet, affidavit signer at TSI predecssor NCO 

Chandra Alphabet, CFPB interviewee, with a very memorable last name. 

Agreed Judgment of Garnishment

Bank of America N.A.(BANA) finds way to cash in at the back-end of private student loan debt crisis - jointly raids bank account of student-borrower and splits the meager proceeds with NCSLT 2007-4

Here is how the National Collegiate Student Loan Trust's strategy of using collection litigation to shore up the poor quality of its portfolio of private student loans -- so dubiously originated in 2007 just before the financial crash -- is playing out at the retail level.

Along with its namesake statutory trusts, NCSLT 2007-4 obtains default judgments against student-borrowers who can't pay, then seizes the borrower's bank account balance through a writ of garnishment served on whatever financial institution the borrower has an account with. The going rate for a bank to respond to a writ of garnishment is $400-$500 in Texas. Bank of America, N.A. is now charging more than a $1,000 for filing the required answer to such a writ (verified by a corporate representative, see image below) and for whatever little effort it takes to see to it that it gets a cut of its own customer's account balance when the court enters a final judgment of garnishment for the Trust.  

Bank of America was in the business of originating private student loans itself, including loans pooled into Trust 2007-4 (See BANA Pool Supplements EX-99.29 and EX-99.30 here). In fact, it was a major partner of the First Marblehead Corporation in the scheme, and an executive in its student lending division took expensive gifts from the high-finance guru who was then at the helm of the private-student loan asset-backed securitization enterprise (which led to the CEO's exit from the First Marblehead Corporation).... But all that happened more than a decade ago. 

A high proportion of the subprime private student loans are now in default, and lawsuits are being used by the folks pulling the strings behind the statutory trusts (which are mere legal vehicles, rather than functioning business organizations) to collect accelerated loan balances and accrued interest to make up for the shortfall in the flow of installment payments caused by rising delinquencies and defaults. The servicer - AES - is under pressure too, for not doing a good-enough job squeezing cash from struggling debtors. 

Bank of America has now figured out how to make money off these failed - often high-interest - loans too; -- once the time has come to squeeze blood from the wayward turnips who can't pay and already had default judgments entered against them that are no longer appealable. The Bank has found a way to "work with" the law firm that does the trust's collection work in Texas, and helps itself to a portion of the money customers unwittingly -- perhaps foolishly -- entrusted to it by opening or keeping a checking account.  

In the case above (Harris County Civil Court at Law No. 2) the cosy arrangements between garnishor and garnishee came close to a fifty-fifty split because the former TSU student had only $2,148.49 on deposit. 

*** 

It was an AGREED JUDGMENT; -- agreed between the garnishor (the Trust) and garnishee (BANA), that is. The debtor did not have a say in the matter. He just had his account frozen and emptied. And the judge just signed off on it, as is typical with agreed judgments. 

The received wisdom among the informed public is that Texas does not have wage garnishment. Far from it. The paycheck money is directly sucked out of the judgment debtor's bank account into which they employer just direct-deposited it. Unlike express wage garnishment as authorized in other jurisdiction, there is no percentage limit on what will be frozen, and then taken by judicial fiat. The theory in Texas is that the state constitutional protection against wage garnishment (except for child support) serves to allow Texas to meet their basic living expenses (and keep them off welfare). But thanks to appellate decisions, once the pay is deposited into a bank account, that protection dissipates. And how many people do not have their pay delivered electronically these days? 

Default judgments followed by writs of garnishment thus allows the National Collegiate Student Loan Trusts to reach monies that would otherwise be exempt from seizure and protected as necessary to meet living expenses. 

WRIT OF GARNISHMENT ISSUED BY HARRIS COUNTY CLERK ON BANK OF AMERICA
ON DEFAULT JUDGMENT FOR NCSLT 2007-4

THE UNDERLYING
 -- COVERTLY --
 HIGH-COST LOAN & AND ITS COLLEGIATE POOL BUDDIES 

In the example above, court record reflects that the student signed the loan application on August 7, 2007, requesting $6,000 for his studies at Texas Southern University the Fall 2007 and Spring 2008 semesters from JPMorgan Chase Bank, N.A. 

The Loan Request/Credit Agreement - Signature Page shows the interest rate as 7.25 and the Origination fee as 10.50. The interest rate is denominated as "Deferment Period Margin" and as "Repayment Period Margin." A standard fine-print contract document (which is not in the court's file) presumably explains that the "margin" is not actually the interest rate, but the percentage rate added to a market index, such as the U.S. Prime Rate or LIBOR. 

The true (much higher) interest rate was then disclosed on the "NOTE DISCLOSURE STATEMENT," and it is 13.742%, rather than 7.25%; -- almost twice as high. Additionally, this DISCLOSURE reflects that an "Origination Fee" of $703.91 was immediately added to the loan balance to enlarge the "Principal Amount of the Note" to $6,703.91 from $6,000.00.  

***  

The LOAN REQUEST/CREDIT AGREEMENT - SIGNATURE PAGE was signed and faxed August 8, 2007. The DISCLOSURE STATEMENT, however, is dated August 10, 2007, three days later. It speaks of disbursement in the past tense ("Amount paid to ..."), so the disclosure of the true effective interest rate (and the cost of credit, including the origination fee) appears to have been made after the fact, if at all (the DISCLOSURE STATEMENT is denoted "File Copy" in the lower margin, which is no proof that it was ever conveyed to the borrower and/or co-signer). 

Moreover, $703.91 is obviously more than 10.5% of the $5,000.00, the loan amount applied for and disbursed. Ten percent and half would by $525.00. Not only was the amount of the debt instantly enlarged by the addition of $703.91 for "origination" that was conducted by electronic means (internet and fax). In addition to this up-front surcharge, the borrower would then accrue interest on that additional portion of the "Total Amount Financed" from day one, along with interest applied to the $5,000.00 amount. So, the true cost of credit would be One-time Origination Fee + Interest accrued based on the APR (sum of LIBOR and Margin) on the disbursement amount + Interest on the $703.91 Origination Fee accrued based on the same APR. And in the case of a "Full Deferral" loan, the total cost of credit computed for the first year (for effective APR purposes, including the origination charge) would compound several times before repayment was even to commence. Enough time for the loan be sold, securitized, and pitched to investors as a highly profitable asset.  

The First Marblehead Corporation would promptly sell this and the entire enormous agglomeration of pools of loans for total proceeds exceeding the nominal value of the loans, and would skim off 8.7% up front from those proceeds to reward itself for its ingenuity. See September 17, 2007 Press Release: First Marblehead Announces Preliminary Estimate of Up-front Fees in Upcoming Securitization. 

At the closing of the NCSLT 2007-3 securitization, First Marblehead expects to receive up-front structural advisory fees of approximately $88.6 million, or 8.7% of the total private student loan balance securitized.  At the closing of the NCSLT 2007-4 securitization, First Marblehead expects to receive up-front structural advisory fees of approximately $88.5 million, or 8.7% of the total private student loan balance securitized. 

USE OF SECURITIZATION PROCEEDS AND ASSETS

          The trust estimates that the net proceeds from the sale of the notes will be applied substantially as follows:

Collection Account(1)                                    $  903,349,048
Reserve Account                                          $  187,424,000
Deposit to TERI Pledge Fund                              $    7,400,867
Cost of Issuance                                         $    1,750,000
Underwriting Fee                                         $    3,339,375
                                                         --------------
     Total Uses                                          $1,103,263,290

(1)	$813,643,182 used to purchase student loans and $89,705,866 paid to The First Marblehead Corporation as a structuring advisory fee.

          The assets of the trust and those assets expected to be pledged to the trust at the closing date are estimated to be:

Trust Student Loans                                   $  769,947,314
Reserve Account                                       $  187,424,000
Collection Account                                    $      299,543
TERI Pledge Fund                                      $   47,736,733
                                                      --------------
     Total Assets                                     $1,005,407,590

CHARACTERISTICS OF THE STUDENT LOANS 

Trust Student Loans

The trust student loans are all private student loans that are not reinsured by the United States Department of Education or any other government agency. The trust student loans are guaranteed by TERI. All trust student loans were originated from several different banks under different loan programs that were structured with the assistance of The First Marblehead Corporation.
The trust student loans will be purchased by the trust from the depositor with proceeds from the sale of the notes.

  

AGGREGATE POOL PROFILE FOR NCSLT 2007-4 TRUST LOANS 

AS PRESENTED IN PROSPECTUS PRECEDING THE BOND ISSUES 

Composition of the Trust Student Loans(as of August 31, 2007)

Outstanding Principal Balance		$997,962,250
Total Accrued Interest		$18,095,723
Total Outstanding Principal and Accrued Interest		$1,016,057,973
Number of Borrowers		69,606
Average Outstanding Principal Balance Per Borrower		$14,337
Number of Loans		71,943
Average Outstanding Principal Balance Per Loan		$13,872
Weighted Average Annual Interest Rate		LIBOR + 5.15%
Weighted Average Annual Interest Rate in Repayment		LIBOR + 5.21%
Weighted Average Remaining Term to Maturity		269
Weighted Average FICO Score for Cosigned Loans		712
Weighted Average FICO Score for Non-Cosigned Loans		707
Weighted Average FICO Score for All Loans		711

S-40

Distribution of the Trust Student Loans by Interest Rate
(Current Interest Rate)
(as of August 31, 2007)

Current Interest Rate*		Number of Loans		Outstanding Principal Balance			Percentage of Trust Student Loans by Outstanding Principal Balance
LIBOR + at least 0.50% but less than 3.00%		8,876		$	103,918,306		10.4	%
LIBOR + at least 3.00% but less than 3.25%		746		$	9,086,629		0.9	%
LIBOR + at least 3.25% but less than 3.50%		1,331		$	13,119,618		1.3	%
LIBOR + at least 3.50% but less than 3.75%		4,041		$	56,200,254		5.6	%
LIBOR + at least 3.75% but less than 4.00%		948		$	10,632,664		1.1	%
LIBOR + at least 4.00% but less than 4.25%		4,249		$	61,753,668		6.2	%
LIBOR + at least 4.25% but less than 4.50%		2,277		$	23,002,856		2.3	%
LIBOR + at least 4.50% but less than 4.75%		11,877		$	170,920,586		17.1	%
LIBOR + at least 4.75% but less than 5.00%		437		$	5,949,517		0.6	%
LIBOR + at least 5.00% but less than 7.00%		26,198		$	383,144,890		38.4	%
LIBOR + at least 7.00%		10,963		$	160,233,262		16.1	%
Total		71,943		$	997,962,250		100.0	%

---

* Base LIBOR index for the month of August 2007 set at 5.32% for all monthly reset loans; base LIBOR index for third quarter 2007 set at 5.32% for all quarterly LIBOR resets.

Distribution of the Trust Student Loans by Interest Rate
(Repayment Interest Rate)
(as of August 31, 2007)

Repayment Interest Rate*		Number of Loans		Outstanding Principal Balance			Percentage of Trust Student Loans by Outstanding Principal Balance
LIBOR + at least 1.00% but less than 3.00%		3,786		$	39,256,707		3.9	%
LIBOR + at least 3.00% but less than 3.25%		1,068		$	16,153,730		1.6	%
LIBOR + at least 3.25% but less than 3.50%		1,730		$	20,623,388		2.1	%
LIBOR + at least 3.50% but less than 3.75%		8,303		$	104,958,273		10.5	%
LIBOR + at least 3.75% but less than 4.00%		1,052		$	11,938,583		1.2	%
LIBOR + at least 4.00% but less than 4.25%		4,240		$	61,698,613		6.2	%
LIBOR + at least 4.25% but less than 4.50%		2,288		$	23,045,424		2.3	%
LIBOR + at least 4.50% but less than 4.75%		11,872		$	170,849,438		17.1	%
LIBOR + at least 4.75% but less than 5.00%		442		$	6,049,452		0.6	%
LIBOR + at least 5.00% but less than 7.00%		26,199		$	383,155,378		38.4	%
LIBOR + at least 7.00%		10,963		$	160,233,262		16.1	%
Total		71,943		$	997,962,250		100.0	%

---

* Base LIBOR index for the month of August 2007 set at 5.32% for all monthly reset loans; base LIBOR index for third quarter 2007 set at 5.32% for all quarterly LIBOR resets.

S-42

SOME DEFENDANTS TELL THEIR TALES OF WOE

 -- WILL ANYONE LISTEN?  

This one has an even higher "Margin": 7.75 over LIBOR

 B.S. WON'T DO  

Trust 2005-3 filed Motion for Default Judgment 

falsely stating that Defendant had not answered the lawsuit 

This Court Caught It