Q & A – Pursuit of Indemnity and Post-Judgment Enforcement Strategies
June 4, 2024
In this Surety Today: The Blog post we will discuss the Pursuit of Indemnity and Post Judgment Enforcement Strategies. The format of this post will be in a Q & A form taken from an interview with Ms. Jodi Smith, President and Owner of Jomax Recovery Services.
Jodi has been in the surety industry for more than 37 years, beginning her career at Amwest Surety. While studying at Cal State at Northridge, she continued building her surety bond claims and recovery skills through her work with several other companies before founding Jomax in 2004. Jomax is a specialized niche agency committed to recovery of surety losses and premium collections across the United States. Jodi has utilized and leveraged her surety knowledge and experience to develop a nationwide network of attorneys to pursue indemnity actions and enforce judgments. “The proof is in the pudding” as they say, because since its founding, Jomax has successfully recovered over $50 million for its surety clients. In addition to pursuing collections, Jomax also performs asset investigations and provides credit reporting services to surety clients as well. So, you have the “one-stop shopping” convenience, nationwide for surety collection needs.
Q: Based on your decades of experience, what are some key factors for effective recovery efforts in surety?
A: Over the years I’ve seen various strategies implemented. There is no one-size-fits-all approach, but persistence is crucial. Whether handled in-house or outsourced, the priority should be on recovering losses. You must motivate indemnitors to pay, using typical collection efforts such as phone calls, letters, credit reporting, filing suit, and sometimes post-judgment enforcement. It’s all about motivating the indemnitors to pay their debt to the surety.
Surety knowledge is also vital. Many people do not understand suretyship. They often mistake surety bonds for insurance policies. If in-house departments and/or third-party collection agencies lack surety expertise they may struggle to explain to indemnitors why they owe money pursuant to their indemnity obligations. So, knowledge of suretyship is essential to effective recovery efforts.
Q: Tell us a little bit about credit reports. How is that helpful?
A: Credit reporting is crucial. If the surety has a personal signed indemnity agreement, surety debts can be reported to the credit bureaus. This is especially helpful for smaller commercial accounts, which are typically under the minimum threshold for suit. Credit reports are key for obtaining loans and bonding. Reporting surety debts to credit bureaus can motivate indemnitors to pay, even more so than judgments, which are no longer reported on credit reports.
Q: Should surety companies be concerned about Fair Debt Collection Practices?
A: The Fair Debt Collection Act does not apply to commercial debts, but credit reporting must comply with the Fair Credit Reporting Act. Debtors can easily dispute accounts online so we spend a lot of time responding to disputes. Despite this, it’s well worth the effort.
Q: So, you mentioned judgments, tell us what factors should be considered before pursuing a judgment.
A: It depends on various factors, primarily setting a minimum threshold for suit. Each client is different, but typically, about $25,000 to $30,000 is the minimum for pursuing on a contingency fee basis. Costs, though relatively low, need to be considered. Also, an asset liability review of principals and indemnitors is crucial, whether done in-house or outsourced. You should evaluate active business interests, properties, credit reports, equity, judgments, tax liens, and employment. Consider disputes on the file, as complex disputes may require working with an experienced surety attorney.
It’s also important to evaluate disputes brought by indemnitors, as complex cases may require the expertise of a seasoned surety attorney. Additionally, there’s been a significant rise in ID theft disputes. While these cases were often frivolous in the past, many of the current ones, particularly those involving freight brokers (BMC 85 bonds), are legitimate.
Homestead exemptions should also be taken into account. For instance, in states like Texas or Florida, there is typically a 100% homestead exemption. It’s essential to also assess the limitations regarding wage and bank garnishments. While these factors don’t necessarily rule out litigation, they should be considered in the overall evaluation.
Q: Does Jomax perform asset investigations?
A: Yes, we perform asset investigations both on an outsourced basis and internally. Before recommending suit, we review active business interests, properties, credit reports, equity, judgments, tax liens, and employment.
Q: You mentioned identity theft issues, what is an example of that in surety?
A: Bad actors can quickly obtain bonding (often fraudulently) then quickly generate claims. For example, a business in New York might have an indemnitor in California with no relevant experience. Clients are now more aware and are taking steps to avoid these situations.
Q: Does your company offer collection services on an hourly, contingent or hybrid basis?
A: Most of our efforts are managed on a contingency basis. We frequently take over judgments previously obtained by the client on an hourly basis, then hire a local collection attorney on a contingency basis, covered by our contingency fee with the client. In some cases, we enter into a flat fee arrangement if we only need to domesticate a judgment from one state to another. Typically, these fees are relatively low, usually around $500 to $1,000 to domesticate a foreign judgment. However, the rest of our accounts are handled on a contingency fee basis.
Q: In some of the indemnity agreements companies have confessed judgment provisions. Have you experienced any issues with trying to enforce those in other jurisdictions?
A: Yes, these are often very difficult to enforce because each state has its own statutes, and sometimes these provisions are not enforceable in the indemnitor’s jurisdiction. Additionally, the indemnity agreement may impose a specific venue, but pursuing action in that venue may not be ideal if the indemnitor owns property in a different state. If they have property where they reside, you will likely need or want to pursue the lawsuit in that jurisdiction. This means you may not be able to enforce the confession of judgment provision. It really depends on the state. It is certainly worth investigating if the provision is enforceable, because if it is, it can significantly streamline your efforts.
Q: What post-judgment enforcement strategies do you find are more successful?
A: The most important strategy is actively pursuing post-judgment enforcement. Often the emphasis is on obtaining the judgment, but the real work begins afterward. Many focus on recording the judgment against the debtor’s property and then waiting for a sale, which can take years, sometimes even 10-15 years. This is particularly true if the property owner has a low-interest mortgage and no immediate need to sell or refinance. Essentially, without proactive enforcement, you’re left with a judgment on paper that isn’t translating into actual money.
Instead, I recommend continuing to push for enforcement. One effective approach is levying bank or brokerage accounts. We’ve had significant success with bank levies, even obtaining banking information from publicly available sources, leading to substantial recoveries like a $140,000 bank hit last year.
Reviewing your underwriting files for banking details and using services that search for such information can also be fruitful. Don’t let old judgments collect dust; revisit them periodically to see if new enforcement actions, like bank or wage garnishments, can be taken. Social media and credit reports can help locate current employment, aiding in wage garnishments. However, be mindful of state-specific laws regarding exemptions and wage garnishments.
Another highly effective strategy is forcing sales on properties where you have levies. If the property has sufficient equity, pursuing a forced sale can be very successful, often leading debtors to settle before the sale occurs. We’ve had a success rate of over 90% in these cases, recovering significant amounts like a $500,000 judgment.
With rising property values over the past decade, revisiting old judgments annually can be beneficial. Ensure you renew judgments when they come up for renewal and reassess their enforcement potential.
Finally, in difficult states like Texas, consider unique options like requesting the court to appoint a receiver to liquidate the debtor’s assets. We’ve had success with this approach, showing that even in challenging jurisdictions, there are viable enforcement strategies.
We at Surety Today want to thank Jodi for joining us and providing her insights and expertise on this important topic. If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group, or our guest, Jodi Smith, President/Owner, JOMAX Recovery Services, 9242 W. Union Hills Dr., Suite 102, Peoria, AZ 85382, 623-328-5897/jsmith@jomaxrecovery.com.