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DEBTORS' HELL

No mercy for consumers

Firms' tactics are one mark of system that penalizes those who owe

First of four parts.

This story was reported by Spotlight team members Michael Rezendes, Beth Healy, Francie Latour, Heather Allen, and editor Walter V. Robinson. It was written by Rezendes and Latour.

It was just before 6 a.m. on a Saturday in the fall of 2002, when Marie-Colette Dimanche woke to a loud rapping at the door of her Mattapan duplex. With her night robe on and her two daughters still sleeping, she rushed down the stairs and peered out the window.

Outside, a tow truck blocked her driveway and her 1996 Chevy Blazer. A man and a woman with a court order told the single mother they had come to take her car for nonpayment of an old credit card debt. With interest and legal fees, the bill totaled more than $2,000, and it came from a company called Commonwealth Receivables. They gave her a choice: Pay the money now, in cash, or hand over the keys.

Dimanche had never heard of Commonwealth and believed the debt had been paid by a social services agency. ''I just said, 'You guys must be insane,'.'' she recalled.

She had reason to be stunned: The debt was at least five years old. And she'd never gotten notice of the lawsuit against her: When Commonwealth, a local debt collector, went after Dimanche, the address it supplied the court was one where she hadn't lived for more than a decade.

But Dimanche didn't have the paperwork to prove the debt had been paid off, and she didn't have $2,000.

''What could I do?'' she said. ''I gave them the key.''

Dimanche is one of thousands of Massachusetts residents who have had their cars seized and lives upended by a pair of debt collection companies, Commonwealth Receivables Inc. of Watertown and Norfolk Financial Corp. of West Roxbury. Run by two brothers, one of whom was disbarred this year for his business practices, Norfolk and Commonwealth have become two of the state's most litigious and aggressive collectors, a Globe Spotlight Team investigation of the debt industry has found.

In America's debt-saturated culture, Chad E. and Daniel W. Goldstone are among the clear winners. They are perhaps the most active local players in a nationwide debt collection industry that has exploded in size and profits, inundating court systems in Massachusetts and across the country with collection lawsuits seeking tens of billions of dollars in debts that are often purchased for collection by the Goldstones and hundreds of other firms for just pennies on the dollar.

The success of such firms is a measure of how dramatically the world of consumer debt in America has changed. It isn't just that consumers lean too heavily on credit cards to get by. It is that, almost unnoticed by policy-makers, many millions of Americans have slid, or been pushed, into a debtor's hell where bank accounts are drained, wages are attached, property confiscated, and threats of jail are an everyday occurrence.

A fate once reserved for the worst deadbeats has become commonplace. The losers are the friends, neighbors, or relatives of just about everyone - people who generally owe the money collectors are after but don't deserve what comes next. People such as Ana R. Rios, a 40-year-old Maynard woman whose car was hooked near midnight even though her debts had been erased through bankruptcy. Or Thomas S. Jessamey, a 45-year-old Saugus man who spent six months struggling to get his car back after it was seized for an old credit card bill.

An estimated one of every 11 consumers has at least one credit card that is more than 90 days past due, according to nationwide data provided to the Globe by the credit reporting agency Experian. Many are already being pursued by debt collectors, or someday will be. And it is a vast army coming after them: In the last decade, the ranks of debt collectors have doubled to 162,000, making debt collection among the fastest-growing sectors of the financial services industry.

In Massachusetts, a Spotlight review of records in all 70 district courts, and interviews with court officials and collection attorneys, found that professional collectors filed an estimated 575,000 lawsuits between 2000 and 2005 - about one lawsuit for every 11 Bay State residents. The vast bulk of those were filed as small-claims actions in the district courts, where debt collectors always have lawyers and the debtors almost never do.

At nearly every stage, the Globe found, the debt collection system in the state is stacked against the average consumer:

  • Many small-claims courts have effectively become accomplices of collection firms, routinely giving them the upper hand in court cases while casually disregarding the rights and dignity of ordinary citizens.

  • Collectors almost always win the lawsuits they file, without being asked for evidence that the debts they are chasing are actually owed.

  • Like Dimanche, debtors frequently receive no notice of the lawsuits against them because debt collectors provide courts with outdated addresses for the people they are suing.

  • The disabled, the elderly, and the working poor are often talked into repaying their debts from their monthly government checks, which by law are protected from legal judgments.

  • And an obscure posse of law enforcement agents - constables and deputy sheriffs - operate freely as the blunt instrument of collection firms, with neither their steep fees nor their sometimes heavy-handed tactics regulated.

It is, in short, a system made safe - and very profitable - for Massachusetts collectors like such as Commonwealth and Norfolk, and for others like them across the country.

''The creditors are all repeat players. They know exactly how the game works,'' said Elizabeth Warren, a Harvard Law School professor who studies consumer debt. ''We're watching a fight between two players, one a skilled repeat gladiator, and one who's thrown into the ring for the first time and gets clubbed over the head before they even get a sense of what the rules are.''

Commonwealth and Norfolk have built a reputation for operating at the hard edge of this increasingly aggressive and methodical trade.

It is a business with many reputable players, firms that collect money zealously but rarely cross the line of fairness. And then there are those that seem to live by another set of rules.

Commonwealth, owned by 41-year-old Chad Goldstone, and Norfolk, owned by his brother Daniel, who is 44, are among the most active users of the state's small-claims courts, where lawsuits are limited to $2,000 or less. Together, the two firms have filed about 12,000 lawsuits in each of the last four years in all but two of the state's 70 local courts, according to records examined by the Globe. That is more than 10 percent of the state's small claims caseload.

And as for car seizures, a tactic many collectors consider harsh and unseemly, the Goldstones have made it an everyday practice.

''The way he handles cases offends us,'' said Richard S. Daniels Jr., the owner of a large Boston collection law firm, speaking of Daniel Goldstone. ''His practice is abusive.''

Seizing cars to collect old debts is lawful in Massachusetts. But time and again, those working on the Goldstones' behalf have turned it into an excruciating ordeal for consumers, making dark-of-the-night collection visits, and holding cars hostage until debtors can scrounge up the cash to pay down a past-due amount.

Almost always, debtors who have their cars towed wind up paying far more than their original debt. Part of that is interest, of course. But it is also the result of hefty fees charged by the people who work on the Goldstones' behalf, the kind of people Dimanche found knocking at her door just after dawn - locally appointed constables, deputy sheriffs, and tow lot operators.

And in cases where debtors are unable or unwilling to pay the debt, plus the high seizure, towing and storage fees, their cars are often auctioned for a fraction of their market value. Or they are junked, leaving the debtors without transportation and still liable for most, or all, of the debt.

The sight of a tow truck at the door is unsettling enough. But for some debtors chased by Norfolk and Commonwealth, it is literally the first they have heard that they are being sued. In several lawsuits examined by Globe reporters, Dimanche's among them, the two companies provided incorrect addresses to the courts, with the result that judgments were issued without the knowledge of the debtors. But finding the right address is seldom a problem for the constables and sheriffs Norfolk and Commonwealth hire to seize debtors' cars.

As Dimanche said in a hand-written plea to the court days after her car was taken: ''I, Marie Dimanche, was never notified of any court hearing, and a judgment was passed without my presence to defend myself.''

But no court motion could fully describe what Dimanche had lost. The day she handed over her keys - her only means to get to work and her children to school - was the last day she would ever see her car.

Leaders in car seizures

How many others sued by the Goldstones have had their cars seized? The courts, which authorize the actions, don't keep records that would allow such a tally.

But other official documents strongly suggest that the two firms have been seizing thousands of cars a year. For example, in affidavits filed in a lawsuit involving Norfolk Financial, Chad Goldstone and an employee of Daniel Goldstone estimated that, four years ago, a single constable company was hooking about 1,200 cars a year for the two brothers. In a two-year period, 2004-2005, deputy sheriffs in four counties - Plymouth, Norfolk, Bristol, and Worcester - seized 1,073 cars just for Norfolk Financial, a Globe review found.

That volume makes the two firms the dominant players in car seizures statewide.

Both brothers and their lawyer, John J. O'Connor of the Boston law firm of Peabody & Arnold, defend the propriety of their business practices. ''We work hard to handle all matters with courtesy and fairness, and in compliance with all legal requirements,'' they said in a written statement.

Only Chad Goldstone spoke to the Globe at any length; Daniel Goldstone agreed to a sit-down interview, but then cancelled it. The Goldstones cited state privacy laws and federal statutes that protect debtors as justification for declining to answer most questions about their businesses, or to discuss lawsuits they have filed.

The Goldstone brothers run separate companies, but that wasn't always the case. In 1992, Daniel Goldstone purchased a defunct collection law firm, renaming it Goldstone & Sudalter, and for several years Chad worked for Daniel, proving especially adept at managing computer systems that have made debt collection a highly efficient business. But in 1997 Chad Goldstone left the business to form Commonwealth Receivables. By then, Goldstone & Sudalter had been sued for bilking its largest client, Sears, Roebuck and Co. out of more than $800,000 - a case that would eventually lead to Daniel Goldstone's disbarment. Daniel Goldstone established Norfolk Financial in 1999.

Even though they parted ways, the brothers remain alike in many respects as businessmen. Both buy delinquent credit card debt. Both employ similar collection tactics. Both work with small staffs from offices so poorly marked and out-of-the-way that they are difficult to find.

And though they are among the top filers of collection lawsuits in Massachusetts, neither company is registered as required by law with the state Division of Banks, which is charged with oversight of debt collection companies. Through their attorney, the Goldstones claim they are exempt because they purchase the debts they try to collect, and do not collect debts for other creditors. But David J. Cotney, chief operating officer for the Massachusetts Division of Banks, said every company in the state that collects defaulted debt, including Norfolk and Commonwealth, must be licensed. ''I don't know what basis they would use to exclude themselves,'' he said.

The Goldstones, as debt buyers, are part of a growing trend that has transformed the collection industry. As the number of deeply indebted consumers has climbed, credit card companies and banks have become increasingly likely to sell off their uncollected accounts in bulk. Purchased by large debt-buying companies, the accounts are then repackaged and re-sold to smaller and smaller firms.

By the time local companies such as Commonwealth and Norfolk pick up this kind of ''stale'' debt, they are buying it on the cheap from firms that have tried and failed to collect. It is their opportunity to make a profit but it also presents a challenge. ''How can [they] be successful where those who went before weren't ?'' said Nicholas F. Ortiz, a consumer lawyer with a lawsuit pending against Norfolk Financial. ''That's where we come to seizing cars.''

Chad Goldstone said the debts he buys are typically one or two years old, although Commonwealth lawsuits examined by the Globe were often for credit card debt that was four or even five years old. Goldstone said he pays 6 or 7 cents on the dollar for the accounts he buys - $60 or so for a $1,000 debt - and generally collects 18-20 cents on the dollar.

Both brothers file nearly all their lawsuits in small claims because the filing fee is capped at $40 and judgments come with greater speed and ease. Chad Goldstone , with a staff of only six, estimated he sues as many as 7,800 people a year and almost always prevails - largely because more than 80 percent of the people he sues don't show up in court. ''People ignore the letters and the phone calls, and then we get a default judgment. That's an ostrich mentality,'' he said.

Or, he added, it's a ''game of chicken,'' in which Commonwealth keeps up the pressure until the holdouts give in, scraping together a negotiated amount, to avoid having their cars taken, or to get a vehicle back.

Daniel Goldstone has filed nearly as many lawsuits as his brother - about 22,000 over the last four years. And he appears to have resorted to car seizures at least as often.

Daniel Goldstone did tell the Globe last year that he takes no pleasure in hooking cars: ''I find it distasteful, seizing cars. ..... It is an avenue of last resort,'' he said.

That claim would come as a surprise to many of the debtors he has sued.

Driven to the brink

At 48, Joanne M. Johnson has been disabled with severe depression for five years. She gets by, barely, on a $739 disability payment. The one thing the Leominster resident owns of any monetary value is her midsize sedan, a 1996 Plymouth Breeze. It is her only means of transportation to medical appointments and to the thrift shops and food banks she visits when she can't make ends meet.

In 2001, when Johnson became ill, she lost her job as a supervisor in the packing department of a local manufacturing firm, then defaulted on a credit card with a $500 limit. Norfolk stepped in, bought the debt, and in 2004 filed a lawsuit against her for $1,035 - the debt plus three years' interest.

That's when the process went awry. When Norfolk sued, it supplied the Leominster District Court with an address where Johnson had never lived. The court put a hold on the suit when the notices came back undelivered. But for reasons court officials would not explain, the suit was then allowed to go forward after another notice was sent to Johnson - at the same wrong address. And when Johnson didn't show up for her court date, Norfolk automatically won.

Then, with a judgment in hand, Norfolk phoned Johnson and told her to appear in court in early February 2005 to work out a payment schedule, according to Johnson. When she arrived, an attorney was there to answer questions. Johnson said she assumed he was a legal aid lawyer. In fact, he was a lawyer for Norfolk Financial who, Johnson said, never identified himself.

The lawyer asked her to fill out a financial statement and then, before she could figure out what was happening, she found herself before a judge.

''I told the judge that once my car was paid off, I could pay $10 a month,'' she said. ''All he said was, 'OK.' He stamped the paper and said, 'You're finished.' Nobody looked at me and said, 'We're going to take your car.'.''

But that's what happened. On April 1, 2005, less than two months after her court hearing, Worcester County sheriff's deputies, who had no trouble finding Johnson's correct address, appeared at her home at about 8 a.m. and took her car. To get it back, Johnson would have had to pay a sheriff's fee, towing, and storage charges and interest, in addition to the $1,000 court judgment. The tally: $1,380.

With the help of a legal aid lawyer, Johnson filed for bankruptcy. But it was not until three months later, after a bankruptcy court judge threatened to jail the tow lot owner, that her car was returned - damaged, says Johnson.

The trauma of losing her car sent Johnson into a downward emotional spiral. Within a week, she became suicidal, and checked in at the emergency room at the HealthAlliance hospital in Leominster. Then she was transferred by ambulance to a psychiatric ward, where she spent two nights under a suicide watch.

While the record is clear that court papers were not sent to Johnson's correct address, Daniel Goldstone said that his company had met the legal requirements for serving notice. As for the seizure, he said: ''Norfolk provided the court's execution to the office of the county sheriff, who caused Ms. Johnson's car to be seized.''

Left in humiliation

For Audrey E. Anderson, a 71-year-old retired Wellesley College teacher, dealing with Chad Goldstone's company, Commonwealth Receivables, turned into an annual nightmare, with Commonwealth seizing her car three times - in 2001, 2002, and 2003.

But what the collection firm took from Anderson wasn't just her 1995 Toyota Camry, she said. It was a retiree's sense of independence. Because her car was seized, Anderson had to lean on her 85-year-old husband, Ezra, and friends, in ways she often found humiliating. ''When you're a strong person and you have your car taken, that's like losing your right arm,'' she said. ''You can't do anything.''

Unlike Joanne Johnson, Anderson did receive a notice from Framingham District Court to appear for her initial hearing, on a debt of $2,019. But she also received a letter from Commonwealth saying, ''Our representatives are willing to work with you on this matter so that your appearance in court may not be necessary.'' (Norfolk sends debtors letters with nearly identical language.)

Anderson said she called to negotiate, started making $50 monthly payments, and was again told she might not need to appear in court. But when she didn't show, Commonwealth won its case against her by default. And when Anderson missed a payment several months later, Commonwealth, armed with its court judgment, sent constables and a tow truck for her car.

If Anderson couldn't afford to pay off her remaining debt, she also couldn't afford the $600 fee charged by the constable for taking her Camry, she said. To get the car off the tow lot, Anderson paid a $135 towing and storage fee, and entered into two monthly payment plans: One to BayState Constable Service Inc. and another to Commonwealth, making an initial payment of $110 to each firm.

Anderson's records show she made some of those monthly payments. But with a limited income based largely on Social Security benefits, Anderson said, she fell behind. And once again, Commonwealth had her car towed.

Anderson managed to retrieve her car a second time, scraping together a payment of $1,075 and entering into another agreement to make monthly payments to Commonwealth. But when she fell behind a third time, the company took her car for good - along with, she said, medication for her asthma, diabetes, and high blood pressure that she had left in the vehicle. ''Can you re-seize this one?'' the fax from Commonwealth to BayState read. ''You should have the original [documents]. Thanks!''

Even though Anderson shelled out a total of $2,741 in debt payments, constable fees, and other charges - more than the original debt - she would never see her car again. Three years later, she still doesn't know what happened to it. When the Globe asked about its whereabouts, O'Connor, Commonwealth's lawyer, would only say that the Camry had been lawfully seized.

Yvonne W. Rosmarin, an Arlington attorney who has sued both Goldstone brothers on behalf of other consumers, said she believes it is unfair and misleading for the Goldstones to suggest to debtors that they do not have to go to court, without telling them that they will automatically lose their cases if they do not appear.

''The debtors work out payment plans, then there are default judgments issued against them and their cars are hooked,'' Rosmarin said. ''It seems to me outrageous.'' Rosmarin also said she believes the tactic is a violation of the federal Fair Debt Collection Practices Act.

O'Connor, the Goldstones' lawyer, insisted that the letters are ''in no way'' deceptive and that they comply with federal law.

Lives disrupted

Losing a car is bad enough. But losing a car, a house, and a job was what faced Michaelyn S. Rackley and her husband, Raheem R. Weldon, in 2001, after Norfolk Financial filed a lawsuit against Rackley - and sent notice of the suit to the wrong address. She lives in Athol. Norfolk sued her at an address in Waltham.

Unlike Chad Goldstone, Daniel Goldstone often goes after debtors' homes, as well as their cars. Real estate records examined by the Globe show that, over the last four years, Norfolk has put liens on more than 1,000 homes throughout the state. Once a lien is placed on a home, it cannot be sold or even refinanced unless the lien holder is paid.

Norfolk filed its lawsuit against Rackley on May 1, 2001, for a $543 credit card debt. Court records show that the notice sent to Waltham was returned undelivered - which should have prompted the Waltham District Court to demand a correct address from the collector, or dismiss the lawsuit. Nonetheless, on Aug. 13, 2001, Norfolk won an automatic judgment against Rackley - because Rackley did not appear for a hearing she knew nothing about.

Then last summer, Norfolk first came after Rackley's car, and then her home.

The Worcester County deputy sheriffs and a tow truck hauled 8away her 1998 Subaru Forester in June. As a consequence, Rackley had to quit her job delivering newspapers for the Worcester Telegram & Gazette.

In July, Daniel Goldstone placed a lien on the couple's Athol home. In October, Rackley had no choice but to pay off the debt - $1,038, with accumulated interest - when the couple went to refinance their home.

But Rackley never got her Subaru back. After it was seized, the storage charges mounted daily - all the way to $5,600 by October. In December, Direnzo Towing & Recovery of Millbury sold the vehicle to recoup its costs, according to the Worcester County sheriff's office.

Rackley has since filed a federal lawsuit against Norfolk. And Norfolk has moved to have the suit dismissed, asserting that all of Rackley's claims ''are meritless as a matter of law.''

Rackley said she's found the experience frustrating. Norfolk, she said, is ''very underhanded. It's almost like they get a list of names and pick one out of a hat and say, 'OkayOK, we're going after that one.'.''

And then there was the case of Marie Dimanche, the Mattapan mother who awoke to a 6 a.m. visit from constables working for Commonwealth Receivables.

Dimanche thought the debt Commonwealth was trying to collect had been paid by Travelers Aid Family Services, an agency for the homeless that had once helped Dimanche find a place to live. An official with the agency said it often provides financial assistance to clients, paying off old debts and restoring credit.

When Commonwealth rejected her explanation, Dimanche's effort to keep her car off the auction block became a race against time. Scrambling to understand the legal actions that had been taken against her, she filed a motion in November 2002 in Boston Municipal Court, asking to have the court's judgment against her lifted.

Dimanche, in her motion, said she never received notice of Commonwealth's lawsuit because of the outdated address the firm provided to the court. She emphasized the urgency of her case: her car was to be auctioned on Nov. 22.

The court responded by scheduling a hearing for Dec. 5 - more than a week after the scheduled auction. And on Nov. 22, her car was sold for $2,197 - about a third of the vehicle's market value, according to the National Auto Dealer's Association Used Car Guide.

Days later, on Dec. 5, a judge lifted the judgment against Dimanche. But by then it was too late. Dimanche resigned herself to bumming rides and using the MBTA to get to work and take her daughters to school. It was two years before she could afford to buy another car.

But a reliable means of transportation wasn't the only thing Dimanche and her children lost: Without her car, Dimanche was unable to make use of a City of Boston scholarship for computer training courses in Quincy - training that Dimanche said would have qualified her for a better-paying job at Sears, her employer.

''They don't understand that they're altering people's lives,'' Dimanche said of Commonwealth. ''It's not like you can just catch a ride and go on like normal.''

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