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Surety Guarantee

Just Me Asking

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My question involves a consumer law issue in the State of NJ

If my unsecured bank loan was in default and was paid in full by their (the bank), "surety guarantee" who am I now obligated to pay off my loan to, since the bank was paid in full by their surety guarantee? I like to resolve this but am confused as to why the bank wants to sue me instead of the surety.

The bank is being forceful and has now hired a collection agency to sue me in their (the bank) name. Can they legally do this?

Apparently the loan was bundled and I'm assuming sold (they won't tell me if it was). So I did my homework and I tracked down and called the surety guarantee, who I found out made the claim payment. When I spoke with the surety (they also sent me an email) they said they do not make payments on the actual loan and has nothing to do with the loan itself but as a bond insurer, their claim payments are related to the bonds and they pay claims to the trustee of the bank and then they distribute those monies to bondholders in the form of principal and interest payments. So in summary they make claim payments on the bonds that are backed by the underlying loans. What does that mean? The bank told me that although it shows I have a zero balance I still owe them. Wouldn't the bank be paid twice once through the insurance claim payment and again by me? Can someone explain this to me? Is it legal that the bank can sue me when they have been paid by the surety guarantee?


I appreciate your feedback.

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I think the topic you are looking for is subrogation. Before we talk about that first, let's talk about something else.

You mention in your comment that the bank says their system shows you owe nothing as far as the computer is concerned. That would suggest to me that quite possibly, the debt collector is really a junk debt buyer and the bank does not own the debt anymore. In that case, they probably sold it for 5 - 10 cents on the dollar and then filed a claim on the insurance for the difference. That would be perfectly legal as the insurance company is not interested in being in the business of collecting debts. This means that the junk debt buyer owns the account and they can sue you.

As for your other question, let's assume that the bank kept the debt and filed a claim. If that is the case, then your argument is that the claim should have subrogated to the insurance company. That happens in 3 ways:

  1. Matter of law (case law)
  2. Statute
  3. Contract

For the first 2, that would require to perform research for your specific situation to determine if the claim automatically subrogated. If not, then you would need to obtain the contract between the bank and insurance company to determine if there is a subrogation clause. You might be able to do that in discovery if you claim that the bank has no standing and unjust enrichment as your affirmative defenses due to the insurance claim being paid. That would be up to a judge to decide.

Note, I am not an attorney and do not suggest taking any action based on the information I give without talking to an attorney or doing research yourself.

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