Julie Anne Chinnock sued Navient Corporation,the U.S. Department of Education, and a Navient student-loan trust a few days ago, seeking two forms of relief. Ms. Chinnock wants compensation for an invasion of her privacy and a declaratory judgment that she does not owe Navient, DOE, or the trust any money.
As Chinnock said in her complaint, the controversy is quite simple and easy to resolve. “Defendants claim that they own certain student loans under which [Chinnock] is indebted to them, and [Chinnock] denies that defendants own such loans.”
This case is reminiscent of the old robo-signing scandal during the home-mortgage crisis about ten years ago. Investors bought pools of home mortgages which were on the verge of default; but when the investors tried to foreclose on the homes, they couldn’t prove they owned the underlying debt.
Apparently, Navient is in the business of packaging student loans into asset-backed securities and marketing them to investors. A lot of these student loans are going into default, but the buyers of those packaged loans are sometimes unable to show they have an ownership interest in the debt.
As Ms. Chinnock relates in her complaint, Navient is a bad actor:
Navient has a proven reputation for its predatory lending and collection practices. A 2014 Consumer Finance Protection Bureau Report found Navient’s illegal loan servicing practices to include: (1) attempts to collect debts not owned by it; (2) unfounded negative threats (i.e. damage to borrower’s credit), and (3) failing to correctly apply payments, among other predatory practices.
Ms. Chinnock also alleges that in 2017, “Navient was the most complained-about student loan company in all 50 states.” She says that Navient was named in 530 federal lawsuits over a three-year period and that it was fined $97 million by the U.S. Justice Department for illegally charging students excessive interest rates.
Regarding her own complaint against Navient, Chinnock claims she paid off all her student loans in the amount of about $190,000 and was never delinquent on any of them (page 15 of her complaint). Nevertheless, in August 2018, Navient claimed she owed on eight additional loans totally several hundred thousand dollars. Chinnock demanded proof that Navient’s principals owned the loans, and Navient refused to provide any documentation.
Is this case a big deal? It is a VERY big deal. As Chinnock’s lawsuit illustrates, lenders in the real estate industry and the student-loan business have gone to court to collect on debts they can’t prove they own. Basically, they relied on a “take-my-word-for-it-loan-ownership ploy.” For a while, the courts played along, allowing so-called lenders to get judgments against people who denied they owed anything.
But it is a principle of basic law that a creditor must prove ownership of a debt in order to get a judgment against a debtor. So far at least, Navient hasn’t produced a shred of evidence that Julie Anne Chinnock owes it money.
If Ms. Chinnock wins her lawsuit, Navient should get ready for plenty more.