When you are buying debt, I cannot stress enough how important it is to check the chain of title as part of your due diligence process. Chain of title in debt is similar to the chain of title for a car in concept. You should be able to verify that each account in the portfolio you are considering has been accounted for from the point it left the original issuer to the present and there are valid bills of sale for each transfer. Many times it will suffice to have a single bill of sale for the entire portfolio, but some states like New York are now requiring account level chains of title. Without this documentation, you may not have the legal right to collect on that debt, and if contested you could end up in hot water or at very least you would lose the money on that debt.

Bills of sale have no set form, but should clearly spell out the buyer and seller, date of transfer and have some method of identifying the accounts being transferred. Pay particular attention to the buyer and seller names, as it is not uncommon to find a company that purchases a debt under one entity name, but perhaps unintentionally tries to sell under a different entity name. For example, if ABC Collections buys a debt portfolio though a limited partnership (let’s call it “Def LP”), then “Def LP” needs to be the one selling the portfolio, not ABC Collections. If the names don’t match exactly you have a break in the chain of title.

If you have questions about how to draw up a bill of sale or purchase contract, please consult an attorney or a legal service that specializes in those types of forms.

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