Article Courtesy of The National
Law Review
By Thomas C. Wolff
Published
April 12, 2021
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.
The FDCPA
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 NCDCA
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.
Conclusion
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.
|