A vital function of the operations of a homeowners association is getting their owner-members to pay assessments on a regular and timely basis. The timely and consistent collection of assessments by associations managed by volunteer boards is impacted by state and federal regulatory oversight of collection practices. Although there have been conflicting court decisions on the applicability of debt collection laws to a homeowners association’s efforts to collect assessments from homeowners, state and federal fair debt collection practices laws are likely to apply to community association collection efforts, particularly when the association enlists the assistance of third parties in the collection effort.
At the state level, homeowners associations are generally required to comply with state laws that prohibit certain described conduct in the collection of debts in consumer credit transactions. Although, the state laws focus on true credit transactions in which a natural person acquires goods and services on credit and later defaults, the broad definition of a consumer credit transaction and consumer credit could be construed as extending to a debt owed to a community association for assessments levied to perform services to the defaulting owner and his or her unit.
At the federal level, restraints on heavy-handed collection practices are imposed by the Fair Debt Collection Practices Act (FDCPA) (15 USC 1692 – 1692o), which prohibits debt collectors from making false or misleading representations and from engaging in various abusive and unfair practices in the collection of consumer debt. There have been mixed decisions in the federal courts concerning whether the FDCPA applies to homeowners association assessments, but it has been established that the provisions of the Act extend to third parties such as property managers, or attorneys who regularly, through litigation, try to collect consumer debts. The principal requirements of the federal FDCPA are summarized as follows:
- If a consumer notifies a debt collector in writing that the consumer refuses to pay the debt, and the consumer wishes the debt collector to cease further communication, the debt collector must not further communicate with the consumer, except as to certain specified communications. 15 USC 1692c(c).
- A debt collector may not engage in certain specified acts, or “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.” 15 USC 1692d.
- Any false representation of the character, amount, or legal status of any debt is prohibited. 15 USC 1692e(2).
- A false or misleading representation includes the failure to disclose clearly in all communications made to collect a debt or to obtain information about a consumer, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose. 15 USC 1692e(11).
- Any threat to take any action that cannot legally be taken or that is not intended to be taken (such as preparing and sending a notice of default without any intention of pursuing foreclosure further) is prohibited. 15 USC 1692e(5). See also 15 USC 1692f(6).
- Any debt collector may not accept from any person a check or other payment that is postdated by more than 5 days, except under certain conditions. 15 USC 1692f(2).
- Five days after the initial communication with a consumer, a debt collector must, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing the amount of the debt; the name of the creditor to whom the debt is owned; a statement, enclosed in an envelope (i.e., it cannot be on a postcard), that unless the consumer disputes the validity of the debt or any portion of it within 30 days after receipt of the notice the debt will be assumed to be valid by the debt collector; and a statement that the debt collector will obtain verification of the debt under certain circumstances. 15 USC 1692g.
Homeowners associations that utilize property managers and/or retain the services of an attorney or other third party to assist in the collection of delinquent assessments from its members must be aware of the most important requirements of the FDCPA. Those requirements do not apply to efforts by an association to collect its own assessments without the assistance of a third party. See 15 USC 1692a(6)(F).
See Federal Statute: https://www.fair-debt-collection-practices-act-text