USING RESTRICTIVE ENDORSEMENTS
TO SETTLE BAD DEBTS Information on restricted endorsements and UCC Codes on negotiable
instruments
Debts are sold by the thousands everyday to third
party debt collectors. Before you assume you owe it, there is caution
to heed. You've probably made the mistake at least once of paying
an old debt without first attempting to validate and or negotiate
it! You may already know the drill- always validate first and settle
later if necessary. Be sure you use VOD
as soon as you receive a collection notice because the law gives
you 30 days to have the debt proven valid. Paying past due debts
such as collection accounts and charge offs need special care. Here
are some great pointers for avoiding costly mistakes.
If you do decide it is time
to pay a collection item then pay it restrictively. If you do not
you will end up with a "paid charge off" or "paid
collection account" and that isn't your goal. Your goal is
total removal.
Do I just avoid the collection agency?
No. The debt won't go away and if it's on your credit reports then
you need to finalize the negotiation process with the collection
agency to get it removed but...you need to go through the steps
of disputing it with the credit bureaus while you are sending your
VOD request to the collection agency because it may be removed with
no further work needed especially if the collection agency totally
fails to answer the investigation request from the credit bureaus.
If it does come back as verified with the credit bureaus then wait
for the collection agency to respond to your validation of debt
request. Read more about
VODs here>.
Upon finalizing the VOD process with the collection
agency you can then decide if you want to pay it. You should send
an offer to pay the debt (only once VOD is complete) in exchange
for total deletion. This is called a restrictive endorsement where
you first send a letter offering to pay the debt at a discounted
amount with certain terms (i.e.: total deletion) and then follow
up with a cashiers check and another letter advising that their
cashing of this check constitutes the agreement (accord and satisfaction)
and therefore they must follow the agreement to a "T".
A word of caution
Not all states offer acceptance of restrictive endorsements and
some collection agencies will cash your check and continue collecting
the debt. To avoid this pitfall, be sure to read your state and
the creditors state UCC code to see what their rule is on "Negotiable
Instruments". If they allow it then you are good to go however
if they do not then there is no guarantee it will work. Also be
sure to read through terms and disclosures if you are attempting
to use one with an original creditor because many of them now add
a section in their disclosures that they do not accept reduced payoffs
with restricted endorsements and you have no rights to do so. Be
careful!
The Restricted Endorsement
Normally you add a section of fine print to the back of the check
stating "Cashing of this check constitutes your acceptance
of my restricted offer. Any and all future claims for this debt
are null". You can also add a notation on the front that says
"restricted endorsement: cashing constitutes agreement".
Don't send these types of offers to lockboxes because it will never
be seen. That is why it is very important to send the offer first
then follow up about 20 days later with the payoff. This way, the
collection agency or creditor had plenty of time to reply to the
offer with a yea or nay.
Do I look for it under state statute or UCC
codes?
The remainder of this article
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