Supreme Court sets limit on collection of "zombie debt"

The state’s high court this week set a four-year limit on how long a collection firm can seek “zombie debt” for an unpaid car loan.

The ruling stems from a pair of lawsuits filed by a national collection agency seeking payment for vehicles purchased in 2006 and 2007.

The lawsuits were filed in 2013 and 2014 by Autovest LLC, a Michigan-based firm that specializes in collecting unpaid vehicle debt.

The Supreme Court ruled that Autovest violated a New Mexico law that sets a four-year statute of limitations for transactions involving the sale of goods, including cars.

Autovest argued that in both cases, the borrowers later made partial payments, restarting the statute of limitations. Justices rejected the argument.

“Accepting Autovest’s argument would restart the statute of limitations whenever a consumer makes a partial payment,” Chief Justice David K. Thomson wrote for the unanimous court.

“This would sanction the eternal revival of claims such that the specter of zombie debt rising from the grave would forever haunt consumers,” Thomson wrote. “There would be no end to the underinformed debtor’s financial anguish.”

The Supreme Court ruling upholds an earlier Court of Appeals ruling and remands the cases to their respective district courts.

In the first case, Debra and Debbie Agosta, a mother and daughter in Las Cruces, bought a used Saturn sedan in 2006 financed with a $14,000 loan. They defaulted on the payments, and the bank repossessed the car in 2008. It was sold at auction for $3,800, leaving a deficit of about $9,000. The bank sold the debt to Autovest.

In 2011, the Agostas made a $1,000 payment on the remaining debt.

In 2014, Autovest filed a lawsuit against the Agostas demanding payment of about $7,500, plus interest and attorneys’ fees.

In the second case, Maria Estrada borrowed $17,900 for a used Nissan Frontier pickup in 2007. After Estrada defaulted in 2008, the bank repossessed the truck. It sold at auction, leaving a deficiency of $9,100. Estrada made a payment of nearly $1,000 in 2009. Autovest sued for payment in 2013.

In both cases, Autovest argued unsuccessfully that the partial payments “revived” their claim, negating the four-year statute of limitations set by the state’s Uniform Commercial Code.

“Reviving the limitation period would allow a debt collector to file a lawsuit regardless of how many years have passed since default, even if the lawsuit would normally be time-barred,” Thomson wrote.