All businesses require a license of some kind before you can hang out your shingle and open shop. Your city or county will always want a little piece of the pie for taxation purposes. After all, who do you think pays for your road maintenance and your children’s education? You do. You know what they say… Nothing is certain but death and taxes!
Aside from taxation purposes, your city’s planning and zoning department will want to ensure that if you are planning to operate your business from home that there won’t be a snarl of customers coming and going at all hours, or neon signs flashing from all of your windows.
The typical license required for a judgment recovery business is a generic business license from your local city hall or county offices. It’s unlikely that there will be a specific category designated for ‘Judgment Recovery,’ so in most cases you’ll be lumped into an ‘Other-Unspecified’ or ‘Miscellaneous’ category.
At first glance, you’d tend to think a judgment recovery business should fall under the ‘Collection Agency’ license category, but in most states it will not – because you are assuming ownership of these judgments and collecting them on your own behalf. If you ever have a couple of hours to kill and want to verify that for yourself, you’ll find that the most common legal definition of a ‘Collection Agency’ reads something like this:
“”Collection Agency” means any person engaging in business for the purpose of collecting or attempting to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”
Here’s the important bit: “OWED OR DUE OR ASSERTED TO BE OWED OR DUE ANOTHER”
Why is that important? Because the judgment will no longer be owed or due to another – it will legally belong to you, and you will be enforcing it on your own behalf. The same is true in regard to a private investigator’s license… It’s not required – in any state – because you’re performing asset locations to enforce your own judgment, and not on anyone else’s behalf, or in exchange for any sort of fee.
By the way, the definition quoted above is taken directly from New Mexico’s legal code, and the language is usually the same – or a variation of that – in just about every state that requires debt collectors to be regulated.
A civil money judgment is an asset. Just like any other property or asset it can be bought, sold, transferred, etc. When a judgment is assigned to you, all right, title and interest in the judgment is transferred to you and your company. The same right, title and interest is revoked, without recourse, from the original judgment holder.
This means that once the judgment is assigned, you now legally own the judgment. This is referred to as ‘purchasing’ the judgment and you’ll also prepare a purchase contract for the judgment holder to sign. The nature of the purchase contract does not require you to pay any money up front for the judgment – you’ll simply make ‘installment payments’ to the original judgment holder when and if money is collected.
There are a few states that do require collection agency licensing. In these states, the regulatory agencies’ view is that if the debt didn’t originate with you, and you’re going to collect it, you must be regulated. To the very best of my knowledge, the states that require you to obtain a collection agency license are Colorado, Nevada, Tennessee, Utah and Washington. In these states this may seem like a downside, however, keep in mind that it means you’ll have little or no competition, and that there’s probably a great need for judgment recovery where you are!
If there are any other topics you’d like to see discussed here, or if you have other questions, just shoot me an email with the topic you’re interested in to: Contact Me.