What’s a Chain of Title in Debt Buying and Selling?
In the debt buying and selling world the chain of title (COT) is a big deal. It’s the way we ensure the accounts are owned properly as they get passed from one hand to another. Essentially it’s a record of ownership transfers documented through a series of Bills of Sale (BOS). Each BOS is proof of ownership transfer from one party to another, a paper trail.
What’s a Chain of Title?
A chain of title in debt transactions is a chronological record of the ownership of a debt portfolio. It documents every time a debt portfolio changes hands, so there’s transparency, legitimacy and compliance with the law. The account chain of title verification for debt is for the protection of all parties involved, creditors, debt buyers and consumers.
How Does the Chain of Title Work in Debt Buying and Selling?
Initial Sale from Creditor:
The creditor, a bank or financial institution, sells a portfolio of charged-off debt to a certified debt buyer. A Bill of Sale (BOS) is created, transferring the debt to the buyer.
Debt Liquidation by Buyer:
The certified debt buyer manages the debt portfolio, often liquidating the accounts through a combination of collection efforts, legal processes or third-party collection agencies.
Subsequent Sale:
If the certified debt buyer decides to sell the remaining accounts in the portfolio they create another Bill of Sale, transferring the ownership to the next buyer. This happens every time the debt is sold.
Maintaining the Chain of Title:
Each BOS is added to the chain of title, so there’s a transparent record of all transactions. So the current owner has the legal right to collect on the accounts.
Why is the Chain of Title Important?
Legal Ownership:
The chain of title proves who owns the debt and has the right to collect on it.
Compliance:
Keeping an accurate chain of title is key to complying with the FDCPA and avoiding disputes.
Transparency:
A clear chain of title builds trust between parties so the debt being sold or collected is legitimate.
Consumer Protection:
It protects consumers from unfair practices so only the true owner of the debt is collecting.
Chain of Title Example
Here’s an example:
Step 1: A bank sells a portfolio of charged-off credit card debt to Certified Debt Buyer 1.
- Document: Bill of Sale from Bank to Certified Debt Buyer 1.
Step 2: Certified Debt Buyer 1 collects on some of the accounts and decides to sell the remaining portfolio.
- Document: Bill of Sale from Certified Debt Buyer 1 to Certified Debt Buyer 2.
Step 3: Certified Debt Buyer 2 manages the portfolio and sells it again.
- Document: Bill of Sale from Certified Debt Buyer 2 to Certified Debt Buyer 3.
Each BOS is added to the chain of title, so there’s a record of all transactions.
Bill of Sale Sample (BOS)
Below is a sample of a BOS used in debt transactions:
Bill of Sale
Date: [Insert Date]
Seller: [Insert Seller Name]
Buyer: [Insert Buyer Name]
This Bill of Sale transfers the ownership of the debt portfolio described in Exhibit A. The seller hereby assigns, transfers and conveys all rights, title and interest in the accounts listed to the buyer.
Signatures:
Seller: ___________________________
Buyer: ___________________________
Summary
The chain of title is the backbone of the debt buying and selling process, so every transaction is documented and compliant. By keeping a clear and accurate record of ownership through BOS’s debt buyers and sellers protect themselves and the industry.
Buying or selling debt? Make sure you understand and maintain the chain of title. 🚀