By: Joe H. Dickerson, CFE

Your chances of successfully enforcing your judgment are significantly enhanced when you understand the psychographics of your judgment debtor. You must know what makes your debtor tick, so you can understand how to attract him. Sun-Tzu says in The Art of War, “Take from a man that which he cherishes, and he will conform to your desires.” This is one of my favorite quotes.
We need to know what makes them tick so we know which buttons to push to get the best legal and ethical result for our client; to significantly improve their judgment enforcement success.

By: Joe H. Dickerson

After locating your judgment debtor’s bank accounts, you serve the bank with the garnishment, you should also serve a subpoena for copies of all the credits and debits, front and back, for at least the last 24 months. The credits may come from other assets of the debtor such as transfers from the debtor’s savings account, distributions from trusts of which the debtor is the beneficiary, rental payments from real estate holdings, or income from securities that are your debtor’s own investments.

You really do not want just the periodic income. You want to take the entire corpus of the asset. As for the debits, you want to see where the checks were deposited, in what bank and to which account (this information will be on the back of the check). They may lead to other accounts or brokerage accounts also belonging to the debtor, or to your debtor’s payment for mortgages or rental property or other owned or controlled assets. The purchase of assets may be revealed or fraudulent transfers that could lead to recoveries from revocable trusts, the assets of which may be taken immediately.

You should always get all incoming wire transfers. You will be able to identify the source, which may be additional accounts, domestic or offshore, belonging to your debtor that you can take, and then trace other assets that have gone through that account. You will get the wiring instructions and the copies of all outgoing wires. They often lead you to sources of recovery, both domestic and offshore.

In addition to the loan applications you’ve subpoenaed from the bank or mortgage company, you will also subpoena copies of all tax returns provided by the person and business. From these tax returns, you will then learn where the income is coming from, possibly from real estate, which you may be able to take, as well. Also, there may be K-1’s that indicate income from partnerships or LLC’s that your debtor has ownership in.
If you determine that the debtor has a single-member, limited liability company, usually you can take the entire company, as federal and state courts have held that a single-member limited liability company has no asset protection. These debtor’s financial statements and tax returns can actually provide you with the DNA of the debtor’s financial life, your road map to unwinding that financial world and recovering assets to satisfy your judgment.

Most consumers have no idea what the Mortgage Electronic Registration System (MERS) is, but one out of every two loans in the United States is ‘owned’ by it. And it has become a tool used by debtors to hide their assets. If you have debtors that invest in mortgages, you need to know about MERS.

MERS is a private US corporation that solved one very expensive problem: how can large amounts of mortgages be bought and sold by investors without generating the fees charged by counties to record the change of ownership? A large group of loans could incur thousands, if not hundreds of thousands, of dollars in recording fees, every time an investment in a loan pool was made. MERS solved this neatly by simply operating an electronic registry. Transfer your loan into it, and MERS is now the nominee owner. You’re free to buy, sell, and transfer your loan to other investors within the registry, without having to record the change of ownership with the local County Recorder.  The Federal Government has backed the system as a way to create a liquid market for investors.

However, some state County Recorders have started to fight back. They are claiming that MERS is nothing more than a work-around to avoid the proper paying of recording fees. Fees that are used to support the cost of a public recording process are lost.

We have also seen cases where debtors use MERS to hide their assets by making sure their ownership is not publically recorded, and they have then failed to disclose their ownership of these assets. The good news is that once we have identified debtors that are involved with MERS, we now have a decided advantage for uncovering current ownership and proving fraudulent transfers: the MERS system itself!

It is important to know that each loan transferred into the MERS system is assigned a Mortgage Identification Number (MIN), and will have this number for the life of the loan, no matter who the current owner is.  Once we build the master list of loans owned (past or present) by the debtor, we follow the ownership transfers by date to develop the status of the investment pool.  Post-judgment transfers can also lead to other entities that are sheltering the ownership of the assets for the debtor that we may have not known existed.

So be aware that MERS is an effective tool that a debtor can use to hide assets, and that it is an even better tool to use for recovery.

If you need help tracing large sums of money through numerous real estate transactions feel free to give us a call at Financial Forensic Services, LLC.  303-974-5610.

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By Joe Dickerson, CFE, CFI

Garnishing your judgment debtor’s bank account should not be your principal reason for finding it. I personally consider it gravy when we find an account with money to garnish. While the funds are important, they aren’t the most important reason for finding it. A good forensic research firm will treat that bank account like the bloody fingerprint it is. Just like a CSI team, we’re looking for the DNA to solve the case, and a bank account is just that. Hidden within are the clues that can lead hard working, inquisitive experts to the otherwise elusive details. Some cases have a plethora of clues, others have fewer, but they are always there, whether we can see them or not—just waiting to show us the hidden path to solving the crime and collecting on your judgment.

Always remember, you have the power of the court behind you to effectuate the discovery needed to locate and recover the assets you need to satisfy your client’s judgment. If the judgment debtor does not have the assets to satisfy the judgment, substantially or entirely, the sooner you learn that, the sooner you can get your clients out of the chase and back to their lives. In most states, the judgment is good for 7 to 20 years and can be renewed prior to expiring. In this sense, time may actually benefit your client as the debtor accumulates assets.

Based on my 50 years of experience, you WILL NOT find your debtors assets via deposition or interrogatories. The first thing most attorneys want to do is a debtor’s exam as allowed by law. That is often followed by interrogatories of the debtor. I have attended hundreds of depositions and have never seen a debtor appear for the deposition with all the subpoenaed documents or tell the truth when questioned about their assets.

Not only is this nonproductive, but usually it’s counterproductive because you merely tell the debtors what you already know through questioning. This gives debtors ample time to really hide assets, costing the client even more money and time to continue the chase. Even subpoenas to the debtor for bank records, tax returns, financial statements, phone bills, and credit card records generally fail to deliver truthful or complete information. To get complete accurate bank records, you must get them directly from the vendor source, not your debtor!

Let’s look at the DNA of bank accounts to see how it can lead you to the documents that will reveal the various sources and assets to satisfy a judgment. To get started—you or someone on your judgment enforcement team has located one or more of your judgment debtor’s bank accounts. You will go through the following process with each account.

First of all, serve the bank with a garnishment for the funds from any and all the debtor’s accounts simultaneously. Serve each bank with a subpoena for copies of all safe deposit box documents; including signature card(s); box entry records; applications; all loan applications and support documents including tax returns; financial statements; copies of corporate resolutions and all other business records on file; all trust documents; all correspondence and notes in loan files relating to the judgment debtor or any business entity related in any way to the debtor; copy of all payment instruments relating to every payment made to the bank by or on behalf of the judgment debtor, directly or indirectly, or any entity related to him or her in any way.

The first subpoena to the bank should also require the production of every bank statement for each account upon which the debtor is a signatory along within, at least, the last 24 months of credits and debits [front and back] for each account. That subpoena should include all authorization documents including who is authorized to send wire transfers plus all actual authorizations for outgoing wires including both paper and voice recordings.

If the bank or a mortgage company is financing the judgment debtor’s home, subpoena the lender for the name and address of the insurance company, and the policy number, for which they are escrowing and paying the premium. Then subpoena the insurance company for a copy of the policy including a copy of all scheduled personal property which can include; artwork, jewelry, furs, antiques, collectibles, guns, silver, and all kinds of valuable personal property. You will not find these valuable assets in public record anywhere. With this evidence, sometimes even in the debtor’s own handwriting, I have never seen a court deny a Writ of Execution or a Turnover order—no one is going to pay a premium on a Rolex they do not own.

This is just the tip of the iceberg, so be sure to join us next month, when we take a trip down south for some Texas style judgment justice by following the leads from the credit and debit DNA!

When you’re synthesizing your debtor’s financial DNA, the proof is in the paper. Be sure the subpoena to the bank or mortgage company also requires a copy of all payment instruments including checks, wire transfers, cashier’s checks, etc. for at least the last 12 payments. The source of these payments may lead you to trusts, business entities, or offshore accounts you did not previously know about. Your debtor may be paying his mortgage with funds from one of his corporations and this evidence can help you pierce the corporate veil as this usage could extend deeper into his personal life. You may also find payments drawn on banks in small towns in another state. Such accounts have led me to a ranch in Texas with a herd of valuable registered cattle along with oil and gas production on the property.

The debtor had claimed the 100% Texas homestead exemption on the ranch but we were able to prove his Colorado homestead ($65,000.00) exemption was valid. He had claimed the homestead in Colorado, he was paying Colorado state income taxes, was registered to vote in Colorado, had a Colorado driver’s license (but no DL in Texas) and his son was attending the University of Colorado with residence tuition. We took the 1,200 acre Texas ranch, the oil and gas production, and the cattle as well. Since we had subpoenaed the bank in possession of the Colorado mortgage for his loan application and support documents, including three years of tax returns and financial statements, inconsistencies began to appear.

One year, the debtor had paid excessive taxes. We subpoenaed the work papers from his CPA, and our Director of Forensic Accounting audited the questionable tax returns along with interviewing the CPA. It turned out that our judgment debtor was anticipating our client’s judgment against him so he overpaid his federal income taxes by about $200,000 with the intent of settling the judgment for a few cents on the dollar after convincing our client that he couldn’t pay. He planned to fill an amended return and get a refund for overpayment. With a court order, our client became the beneficiary of the refund instead.

The three years of financial statements informed us that our judgment debtor had acquired a $275,000 condo for cash in 2006 as well as an oceanfront home on five acres in the Turks & Caicos Islands in 2008 for $1.2 million. Rather than fight for the properties in a well-known tax haven, we requested cash payment of $500,000. This was a win/ win for everyone involved, and there was practically no related cost for the work.

From the original bank account, we subpoenaed the signature cards and all credit and debit instruments for two years. This wealth of information included everything from authorization documents to voice recordings for all inbound and outgoing wire transfers. The subpoena also covered all direction and authorization relative to any and all sweep direction, credits, and debits including transactions and the full name, address, and account number of every account receiving debits from the account.

Million dollar debit transactions in Texas required we move our action further south. Investigation of an account held in our debtor’s name revealed still more subpoenaed documents which led us to recover $85,000 from the debtor’s checking account and a $1.1 million 1,200-acre ranch. Copies of a $325,000 wire transfer from the original account payable to Ft. Lauderdale Rolls Royce and an account in Ft. Lauderdale, FL. After registering the judgment with the US District Court in Miami, we learned that the dealership had sold a Rolls Royce to Florida Enterprises, operated by J. Debtor, Jr. We were able to show the court that the vehicle was purchased by J. Debtor Sr. who signed all the purchase documents personally and then titled and registered the vehicle fraudulently to his son. We were able to return the car, and the $300,000 refund went to our client.

From the debtor’s personal credit report, we found a very active American Express card. We subpoenaed the records for the card for the past two years, and again we found more spending in another state. Charges to Caesars Palace Hotel & Casino in Las Vegas led us to register our client’s judgment in Reno, NV. More investigation uncovered a $250,000 credit on deposit with the casino which we garnished. Subpoenaing all charges to the debtor’s room revealed numerous toll calls to a phone back in Florida. The mystery phone belonged to Jane Doe (later determined to be Mr. Debtor’s girlfriend), and further research reflected that she resided in a $385,000 condo with no encumbrances owned by our debtor. We obtained a Turnover Order, took ownership of the condo and sold it for a net recovery of $360,000 for our client.

Even more activity was later revealed, and it was all due to the information found within that very first bank account! Our very strategic debtor had done his best to hide as much as he could, but spending leaves a bloody trail that forensic analysts can piece together based on that financial DNA. Never underestimate a paper trail, even if the bank looks empty.