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The Future of Process Service In NYC

Process Servers 2011

2011 What a year for NYC Process Servers!

Wow, what a year of changes for NYC process servers and New York City process server agencies. First of all, I want to apologize to all my clients who were blindsided by the rules and regulations passed and currently in effect.   I heard from many who called with questions and concerns regarding these changes. Please understand that the new rules and regulations were endorsed by many borough and city bar associations. That being said, I was under the assumption that most of you knew about these changes.

I do want to see if I can clarify what I believe happened to cause these changes. Some of the processes that happened, a time line if you will, and look into a crystal ball to see the future. I had to borrow the crystal ball so if my seeing into the future is way off, it’s the crystal ball.

We all know that every industry is “cleansed” once every ten to fifteen years or so. Do you remember in 1985 when process servers  were part of the bribery charges to get quicker evictions?  On April 4, 1999 the New York Times ran an article, “ What Happens if Process Server Doesn’t Serve ”, about a Long Island process serving company that allegedly signed affidavits for their servers and notarized those same affidavits.  They were signing affidavits of service that the assigned server didn’t even know about let alone serve.  And who needs to pass a notary exam, just get a notary stamp made and notarize them.  Nassau County soon after tried to pass new rules to license process servers, just like New York City but it ultimately failed.  I will write more about questionable process servers in NY and other venues in later newsletters. Trust me when I say it was not just a New York problem, it has happened in Florida, Minnesota, Nevada, Mississippi and other areas of the country.

A couple of years ago,  a legal help agency did a study in the NYC courts and researched the number of services that were done personally, substituted or conspicuous and  a huge disparity over previous year’s numbers became evident.  They found that a number of defendants stating they were never served were also unusually high. I know we have all heard this before about not being served but this time the numbers were really off. They published a report and it caught the eye of the NY Attorney General’s office. I do want to state that most of the services under investigation were collections, L&T and foreclosures.

The result was an investigation by the NY Attorney General of a Long Island process service agency owner and servers for signing affidavits of service but not really serving them. It was ridiculous, one of my favorites was when a server served a paper in Jamaica, NY and ten minutes later served someone in Jamestown, NY.  At one time, the NY Attorney General was thinking about vacating over 100,000 judgments averaging $4,500.00 each.

During this time period, Florida was exploding with accusations of sewer services, robo signing and there were jobs where people just sat and signed names all day and more times than not, they were signing other people’s names. Nevada had an ex-cop not serving collection notices but signing affidavits that he did and ultimately ended up in jail. Remember a couple of years ago an ex-cop in upstate New York shot a guy he was serving.

The one process service agency was not the only one the NY Attorney General was investigating; there were a handful of collection law firms as well. At the date of this email one process service agency owner has gone to jail, but not one attorney. It was comical; the law firms said it is not our responsibility, talk to the process serving agencies.  The process service agencies were saying it is not our fault; we use independent servers and are not responsible for their actions. This was echoed not only in New York but Florida and other states as well.

Here come the politicians to the rescue, yea! Oh my goodness, at a time when our economy is in a slump, people are losing their homes due to foreclosure ,  workers losing jobs, tenants are getting evicted stating they were never served … what an opportunity. Someone sponsors a bill and says we have to fight for our constituents.  We have to protect the people from the big bad process servers and the big bad lawyers.

Let’s see, who is easier to regulate…process servers or law firms? Gee I wonder??? So, at the time when mortgage brokers are being regulated to death, I believe our politicians decided; why not follow their model in the process serving business?  Lawyers will fight back but the process service business is so fragmented, we can push rules and regulations through with very little resistance. And look good to our voters at the same time. In short, let’s make agencies and process servers accountable, financially responsible, keep files electronically and track them via GPS.  I am not sure if this is accurate but it makes sense to me.

Yes, there were public hearings with everyone thanking the panel for their time before speeches both pro and con. Letters sent to the politicians and NYCDCA.  The new rules passed in two parts; and are in effect now. Yes, there was a lawsuit filed by a process servers association but the judge basically decided that she cannot rule on something that hasn’t happen yet. I cannot rule on a “what if”. The judge also urged the association and NYCDCA to work it out together. The NYCDCA gave a few concessions, such as servers doing log books or spreadsheets 24 hrs after an event was changed to one business day. Agencies that did not use a third-party for electronic records had 48 hours to record the events of their servers was changed to two business days.

There are now bonding requirements for server agencies and independent process servers. Agencies need a $100,000.00 bond while independents are required to get a $10,000.00 bond.  Salaried servers such as ours are covered under our agency bond. A key change was made to the bonding requirement for independent servers. The concerns from the independent servers side was the credit worthiness to qualify for a bond.  So NYDCA came up with a “general fund” that if the independent server could demonstrate by having two letters of denial from two different bond companies, they could put $1000.00 into a general fund.  I do believe that this means that the process server’s license for them is now $1,340.00 every two years, even if there is no complaint brought against him or her. Agencies who do not qualify for the $100,000.00 bond are, I guess, out of business unless they put up the $100,000.00 in cash themselves.

There was, I believe a good argument, regarding the GPS requirements because of the untested technology, privacy issues and hoping that the GPS and AGPS technologies stay consistent.  Already Apple has changed their policy on some aspects of GPS. These arguments were ignored; the rules passed and gave us sixty days to comply.

One item to note is that this new law applies to everyone who serves more than five services a year in the five boroughs, except attorneys. So if your firm has inside people that serve, all indications are that they need to comply as well.  Bond, license, third-party GPS and records, just like everyone else. This comes from several of my clients who called myself and the NYCDCA and asked. I have not heard back stating anything different except to say that one law firm made an executive decision to stop using in house servers.   I will add that if you call NYCDCA and try to get clarification on some of the line items of the law, good luck, all they do is refer you to their web address.

The last time I checked there were 156 licensed agencies and 1845 licensed process servers registered with the NYCDCA.  Now that the new rules are in effect I wonder how many will renew their license at the end of February 2012. I have already spoken to servers who will no longer serve in the five boroughs for various reasons pertaining to the new rules. Many have failed the process server’s exam twice and now have to start from the beginning applying for the license.  There may even be some who thwart the new law until they get caught, fined and possibly suspended. The NYCDCA already sent out forty violation notices to agencies who have not filed all the necessary paperwork.

Following what has happened in the mortgage industry as a guide; my guess is that the 1845 license process servers will be cut by at least one third (not including the normal attrition rate), agencies not as much but fewer than 156.  It used to be relatively easy to get a license, now the test, the bonding requirement, the telephony and all the record keeping will make it more difficult to get a license and recruit people to get into the business.   I will also mention that I have received calls and emails regarding process service agencies wanting to sell their business.

I believe the immediate response from the process service industry to the new rules and overhead will be divided into three types:

Type one, such as our company,  will not have price increases right away because we already had the electronic record keeping in place for over ten years and our investment to any changes were minimal.
Type two is to increase their prices to cover the new higher overhead.  They may even hard sell the issue of the “strict new rules” they have to follow and emphasize it is not their fault.
The third type may try to lower their prices, as this is the normal way most process servers compete especially now that the new rules basically makes it an even playing field. Although I think this model and possibly the agencies may be short lived.

All of these are viable business models with one exception. Eventually, I believe there will be less and less licensed process servers available to serve papers.  The existing independent process servers will demand more money per paper as their overhead goes up as well. They now know or will eventually understand their worth to a process service agency has increased and be in a better position to demand more money, limit their hours, etc. Server agencies like mine who offer salary, bonuses, medical coverage and retirement will have to offer even more in the future as the pool of process servers dwindle.

Replacing a process server will be more difficult moving forward. Today for example, in the mortgage industry, the originators are in high demand, why, because the new regulations and the addition regulations yet in place make it difficult and lengthy for people to get a license. Simple supply and demand; fewer originators demand more money. Right now successful originators are being heavily recruited and the good ones are demanding  and getting more in salary, benefits and other perks. This has all happened in a relatively short period of time.

The collection, L&T and foreclosure agencies will last the longest simply because of their existing model.  Foreclosures will be the first to dwindle as soon as the housing market improves.  Collection and L&T has always had a steady stream of services and depending if they embrace technology or not, their model may be around a long time. What I mean by embracing technology is all the scanning of documents, field cards, notes and affidavits among other new requirements. Imagine have twenty or more services in the same building with the new rules.  In the past, electronic records were almost nonexistent for them not as they are now. That being said I think it will slow their capacity down to a point that the cost of paper served will increase. I just don’t know to what degree.

Is the independent server’s time limited? This is where I think everyone overlooks or chooses to ignore.  Are they really independent contractors in the eye of the IRS and New York Department of Taxation? If you look at the definition and questions regarding a true independent contractor status, they may not even be considered independent contractors. This alone could affect the industry even further and drive costs up.  There are many agencies that have no employee designated status when it comes to servers. There are many “independent servers” designated as independent contractors that work for one agency.  I think it is just a matter of time when they may be forced to put servers on payroll with a salary or hourly wage that includes all the deductions, workers comp and everything else associate with the employee status.

They could put there servers on a minimum wage with commission but with that comes with a whole other can of worms that the agencies probably don’t want.  You have to understand; right now they pay on a serve by serve basis. You serve it or non-serve it, you get paid. Doesn’t really matter how many attempts it takes to complete the paper you get paid the same.  On minimum wage the agency has to start worrying about the cost per paper and am I making money. It is easy to figure out if you are making money when there are fixed costs but as soon as those cost are fluid, the whole model changes.  I don’t care if all you pay them is minimum wage. One other point, recruiting based on minimum wage would be a nightmare.

The agency model who use independents stays the same if the number of papers drops for any reason, no big deal, they just make less money as does the independents. Change the model to a salary or hourly process servers and panic sets. Okay lay them off, let them draw unemployment. It still costs more money with the increased unemployment rate the agency will have to pay. Get more clients may be an answer but then you have to be very careful with growth under the salary plan because of the difficulty of getting servers without bad habits.   I have had experience with this back in 2000 -2001 when I hired a couple of salespersons to attack the marketplace. Before I knew what hit me, my servers were over capacity and I could not hire fast enough because of the slow process NYCDCA had issuing licenses. Now it will be even slower! It cost me dearly in reputation and I lost a few clients over it. Not a fun time in my career.

There is one model I have not brought up yet. The law firm hires in house servers. Bonds, license electronic record keeping third-party GPS, yes this can work and good luck with it. I wonder if you have to get an agency license as well? I am available for consultation or drinks, which ever you prefer!

Yes, I think service of process costs will go up. How much depends where the industry settles. A good thing will also come out of the new laws. You will get better service, better people and a better process serving industry. People in the business like me who love the business and like the other people associated with it. People like me who are proud of our profession and are always looking to improve it.

Well, the borrowed crystal ball just went dim. It is time to return it.
Thanks

Bryon  McKay