What Do You Mean I Can’t Place the List of Delinquent Homeowners on the Clubhouse Door? Community Association Pitfalls: State and Federal Collection Laws
Whether you are a board member or a property manager for a community association ("Association"), you have probably dealt with owners that fail to pay their assessments, and whose accounts need to be referred for collection.
In some cases, Associations or their managers may take it upon themselves to begin the collection process, which carries with it certain inherent risks. Most people are unaware of the detailed state and federal laws that govern debt collections, which are wrought with comprehensive restrictions and requirements that must be strictly followed.
The two most important regulatory schemes are the federal Fair Debt Collection Practices Act ("FDCPA") and the state North Carolina Debt Collections Act (the "NC Act"). Many of the regulations found in these Acts may apply to Associations and their managers.
As the name implies, the FDCPA is a federal law that was created to protect "consumers" from abusive and unfair practices by "debt collectors." Consumers are generally defined as any natural person obligated to pay any debt which arose out of a transaction where the services were primarily for personal, family, or household purposes. Courts have been very clear that individual owners and their Association assessments fall under this category. However, what constitutes a "debt collector" is a bit more ambiguous.
The FDCPA broadly defines "debt collector" as anyone who regularly collects or attempts to collect a debt owed to another, whether directly or indirectly. Because the FDCPA is only applicable to those collecting debt owed to someone else, it does not generally apply to the Association itself and its efforts to collect its own assessments. But, managers may find themselves governed by the FDCPA if they attempt to collect assessments on behalf of the Association. Whether the FDCPA in fact applies to a manager is a fact-specific inquiry, which depends heavily on the nature of the contractual relationship between the manager and the Association, and the extent of services provided under that contract.
The other applicable regulatory scheme is the state-counterpart NC Act. Similar to the FDCPA, the NC Act is also designed to protect consumers from harmful practices by debt collectors, and also applies to the collection of Association assessments. However, the NC Act defines "debt collectors" much more broadly, applying to any person engaged in debt collection. This means that the NC Act's requirements may apply to both Associations and their property management companies when they are acting to collect delinquent assessments.
Prohibitions under the Acts
Both the FDCPA and the NC Act are strict liability statutes, which means that they must be followed precisely. Any violation of the Acts, no matter how small or incidental, may subject the offending party to liability for actual damages, statutory fines, reasonable attorneys' fees, and even punitive awards. In addition, both Acts carry the same or similar restrictions, and act independently of one another. This means that a single violation may subject an offending party to multiple fines and penalties under both Acts.
The main thrust of both Acts is to prevent debt collectors from using unconscionable means to collect a debt, such as deception, threats, coercion, harassment, or publishing the debt to third parties. While the lists of prohibited acts in each Act are extensive, the following are some of the more common prohibitions to be aware of:
Making threatening or false accusations to a consumer, the person owing the debt.
Representing that nonpayment of the debt may result in that person's arrest, the seizure or garnishment of any property (including bank accounts or wages), or threatening any other actions that are not permitted by law.
Placing telephone calls or sending communication without properly identifying oneself or the creditor.
Placing harassing telephone calls, whether because of the frequency or timing of the call, calling the consumer at their place of employment, or making the call after being asked to cease communication.
Publicizing the owner's debt to any third party without the consumer's express permission, regardless of intentionality. This may be an accidental release of an Association's spreadsheet of accounts, mailing a notice to someone other than the consumer or the owner, discussing the debt with a resident of the home who is not the actual owner, or "posting" a list of owners with delinquent assessments. (Because of its broad application, these actions tend to be the most easily violated limitations.)
Communicating directly with a consumer who is knowingly represented by an attorney.
Affirmative Requirements under the FDCPA
In addition to the prohibitions outlined above, the FDCPA also requires the debt collector to provide certain information within 5 days of their initial communication to the consumer. This communication must clearly include the amount of the debt, the name of the creditor who is owed the debt, the contact information for whom to contact to discuss the debt and make payment, and certain "mini-miranda" language setting out the consumer's rights, including their right to request written verification of the debt and dispute its validity. In addition, the" mini-miranda" language must be reprinted from the statute verbatim to avoid potential liability.
Because of their strict enforcement by the courts, it is imperative that both the FDCPA and NC Act be meticulously followed at all times. The best way to insulate an Association and its manager from potential liability, is to work closely with your attorney to draft detailed procedures and guidelines which must be diligently followed during the collection process. This collection policy and procedure should be custom tailored to your Association, and provide the best protection to help lessen legal exposure to the Association and its manager.