Sued by Shore Funding: 7 Things That Happen Next

Shore Funding is usually not the one suing you. The company is a broker, arranging loans and merchant cash advances but not actually providing the money. The name on your contract is probably the one filing papers against you. The process is still in the early stages, which means you have the chance to respond in court. It is a lawsuit, and you must file a response before the deadline on the paper. Missing it can mean a default judgment and frozen bank accounts. You can still fight or settle.

1. Read who is suing

On the top of the notice there should be a box with the parties involved. The Plaintiff is the one suing and you are the Defendant. If Shore Funding is not the plaintiff, you cannot ignore the lawsuit and assume it is a mistake. Make note of the case number. If you have co-signers on the loan, they may not have received a notice. It is important that every person involved is able to respond before the deadline or else a default can be entered and a judgment can be made. It is important that you know where the lawsuit is occurring, because it affects where you have to respond. It is important to have your own records to defend against the lawsuit. You also need the original agreement.

2. The clock starts

Service of the papers is the start of the clock. The time to answer a lawsuit depends on the state and how you were served the papers. In New York, you have 20 days to answer if the summons was handed directly to you and 30 days after service is complete if you were served in another method. Different jurisdictions have different timelines and you need to know what your deadline is in order to respond.

You may be thinking that you can make a deal with the funder to pay off the debt. A lawsuit is not the same as a debt collector calling. Even if you contact the funder to negotiate a settlement, you still need to respond to the lawsuit. Get the papers reviewed by a lawyer immediately, even if you believe you were not properly served. Some options evaporate if you wait.

3. Miss it, lose by default

If you miss the deadline, the lender may seek a default judgment. The company gets to win with no argument from you. You have a limited time to respond after a default judgment has been entered. If you already have a default judgment, get the court record and have it reviewed immediately. Laws vary by state, but in New York, a motion to vacate for excusable default must be made within one year after you are served with the judgment and notice of its entry. Nothing guarantees the default will be vacated.

4. Check for a confession

You may have signed a confession of judgment in order to get the loan. In these instances, the lender can get a judgment without a court hearing. State law varies on the validity of the confession and what is required of the lender to pursue the judgment. It is not automatically considered legally enforceable, but you need legal advice on your state and the wording. The New York state legislature changed the law. Since August 30, 2019, a confession of judgment in New York may only be filed by a lender whose borrower resides in a New York county. A business counts as resident wherever it has a place of business in the state.

5. The contract gets examined

Look at the balance the lender claims in the complaint. Compare it to the loan agreement. Look at it to find out exactly how the money was supposed to be repaid. Find out who is allowed to collect the debt. Get every document you have showing how much you borrowed and what you paid back. A balance claimed in the complaint is not necessarily accurate.

If you promised a percentage of revenue and your payments did not align with revenue, the history matters. Did you ask for an adjustment to payments? How did the funder respond? Calling it a business loan in the agreement doesn’t automatically make it a loan for all purposes. Does the debt belong to the business, or did you personally guarantee the debt? If you personally guaranteed the loan, you may be sued individually as well as for the business. Every lawsuit is different, and you need to know your state’s laws and the wording on your contract.

6. Pressure on your money

If you lose the case, the lender has a judgment against you. They can try to collect it, and the way they collect it may vary from state to state. In New York, after a judgment is entered, the lender may serve a restraining notice on your bank. The bank may freeze up to twice the amount due on the judgment.

A notice may also be sent to your customers or processor saying any payment for you must go to the funder instead. The notice may seem like the end of the world, but look closely. It is not a judgment or proof that every item on the notice is valid. You may think it’s OK to start a new bank account or move assets to avoid a lawsuit. If you are sued, this is not something you should do without advice from a lawyer.

7. Settling instead of fighting

You can settle the case instead of fighting, but you have to understand what the terms are and how they may impact the future. Any deal you make needs to be something you can afford to pay and must be accepted by the lender.

A payment plan can leave a balance and a personal guarantee that could be the target of a lawsuit. Get a written settlement that sets out the total, the dates payments are due, and which claims are covered. You want it to release your personal guarantee. You need to make sure it clearly says what is being dismissed. You also need to get the bank accounts and merchant restraints released. Your customers and processor also need to know, and any UCC filing needs to be withdrawn. The agreement should cover what happens if you miss a payment.

If someone is negotiating for you to settle, you must confirm whether a lawyer has also agreed to defend the case for each defendant. These are two separate jobs.

You must have a plan and act on it to deal with the lawsuit.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.