– By Laurie F. Masotto, Esq. (originally published in October, 1997)
In a recent case, a California Appellate Court determined that homeowners associations are required to comply with the Federal Fair Debt Collection Practices Act (“the Act”) when collecting assessments.
In Thies v. The Law Offices of William A. Wyman, decided in July, 1997, a homeowner failed to pay assessments, and late fees, to the manager’s office. The Association’s attorney then wrote to the owners indicating they owed $30.00 in attorney’s fees. The homeowners continued to pay their assessments for the next several months, but did not pay the attorney’s fees demanded. The attorney returned each check, stating they must pay in full, including attorney’s fees. A default judgment was then entered against the owners. The owners sued the attorney’s office and management company, claiming they violated the Act.
The issue was whether association dues are subject to the Fair Debt Collection Practices Act. In order to fall within the Act, there must be a “debt” collected by a “debt collector”, arising out of transaction primarily for “personal, family or household purposes”. The Court found that the assessments constitute a “debt” used by the Association to maintain and repair the common area, which directly benefits each household.
Although the Court did not decide the merits of the case, such as whether the return of partial payments made by check was acceptable, it is the first California case to hold that associations are subject to this Act.
While individual officers and directors are not subject to the Act, in order to reduce potential liability (which could result in an award of actual damages, plus civil penalties of up to $1,000, costs and attorney’s fees), associations and their managers and attorneys should review their collection activities to ensure compliance. The following is a summary of the pertinent provisions:
(i) Communications with third parties (a person other than the owner) are limited to:
(a) Confirming or correcting the owner’s location, after the collector identifying himself/herself, and not making any reference in telephone calls or on envelopes that a debt is owed. Only one communication may be made for this purpose, unless the person being contacted requests the collector to call back or write for further information. No communication by post card or use of any language or symbols on envelopes indicating a debt is being collected is permitted. If the collector learns the owner is represented by an attorney, he/she must not communicate with any person other than the attorney, unless the attorney fails to respond.
(b) Except as in Section (a), or without the consent of the owner, or to effect a post-judgment judicial remedy (i.e. bank account garnishment), or with express permission of a court, the collector’s communications are limited to the owner, his/her attorney, a consumer credit reporting agency if permitted by law, the creditor, attorney of the creditor or attorney for the collector.
(ii) Communications with the owner (or his or her current spouse or executor) are limited to:
(a) Unless the owner consents, the owner can only be contacted between 8:00 a.m. and 9:00 p.m. The owner may not be contacted at work if the collector knows the employer prohibits him/her from receiving such calls.
(b) Upon the owner notifying the collector he/she refuses to pay, or to cease further communication with him/her, the collector may only communicate to advise collection has been terminated or to notify that the collector may invoke specified remedies to collect the debt (i.e. non-judicial foreclosure/lawsuit).
The collector may not harass, be oppressive or abusive, threaten of violence or criminal means to harm the person or his reputation or property, use obscene or profane language, make repeated or continuous telephone calls, or publish names of owners refusing to pay debts.
III. False/Misleading Statements.
The collector may not make false or misleading statements, such as the amount of debt, compensation to be received by the collector, false representation or implication that one is an attorney, or threaten to take action which cannot legally be taken.
Representing or implying that nonpayment of the debt will result in arrest/imprisonment, or garnishment or sale of any property or wages of any person is also prohibited, unless such action is lawful and the collector (association) intends to take such action.
IV. Unfair Practices.
The collector may not use unfair or unconscionable means to collect, such as: failing to disclose in the initial communication (oral or written, except to confirm the owner’s location) that the collector is attempting to collect a debt and that any information obtained will be used for such purpose, the failure to disclose in subsequent communications that the communication is from a debt collector; collecting amounts not authorized by the CC&Rs or statute; communicating by post card, using symbols on envelopes indicating a debt is being collected. We suggest you consult with our office to ensure warning/pre-lien letters contain the language as to disclosure of the debt and that information obtained will be used for that purpose.
With respect to checks, unfair practices also include (i) acceptance of a check postdated by more than five days, unless the check writer is notified in writing of the collector’s intent to deposit the check not more than 10 nor less than 3 business days prior to such deposit, or (ii) soliciting any postdated check for the purpose of threatening criminal prosecution, or (iii) depositing or threatening to deposit any postdated check prior to the date on such check. If your association or manager’s office receives partial payments, we recommend you contact our office as to how to proceed, before either cashing or returning the check.
V. Validation Notice.
Within 5 days after an initial communication with an owner regarding collection of the debt, unless the following information is contained in the initial communication or the owner has paid the debt, the collector shall send the owner written notice indicating the amount of the debt, name of Association to whom assessments are owed, and a statement that unless the owner within 30 days disputes the validity of the debt, the debt will be considered valid, and that if the owner notifies the collector within the 30 day period that he/she disputes the debt, the collector will obtain verification of the debt (i.e. account history) and mail same to the owner.
The pre-lien letter containing the information already required by Civil Code Section 1367 (a) meets these requirements, with the exception of notification as to whether the owner disputes the validity of the assessments. Please consult with our office as to appropriate language to address this requirement.
VI. Multiple Debts.
If an owner owes multiple debts and makes single payments to the collector, the payment may not be applied to any debt which the owner has indicated he/she disputes, and where applicable, shall be applied in accordance with the owner’s directions. Upon a homeowner giving specific directions on a check or otherwise, please consult our office as to how to proceed, as the directions would need to be evaluated, given the requirements under the Act and Civil Code relating to application of payments, and to determine whether the homeowner is attempting to circumvent the Association’s collection policy.
If you have any questions as to whether you are in compliance with this Act, please feel free to contact us.