Know How to Avoid Lawsuits Over HOA Collection Tactics
In this week's tip, we double back and cover what you need to know about the Fair Debt Collection Practices Act. We at HOAleader.com talk about it a lot. It's actually a pretty complicated law that many people don't fully understand.
"It's a gigantic issue for us," states Susan Hawks McClintic, co-managing shareholder and the chair of the community association transactional practice group at the law firm of Epsten Grinnell & Howell in San Diego. "Part of the problem is that I don't think everybody, even attorneys, understands the ins and outs of it. So it's so easy to make a mistake."
Overall, the FDCPA protects debtors from being harassed by creditors. If creditors violate the act, consumers can sue them for damages—even if the consumer actually owes the debt. It's not about eliminating consumers' debt. It's about sparing them the stress and financial burden caused by unscrupulous creditors.
The act applies only to consumer debt, like credit card debt; it doesn't cover business debts. Also, it restricts the activities only of third parties collecting debt on behalf of another entity.
"It's an important consumer protection statute that does apply to the collection of assessments," says Gregory S. Cagle, a partner at Savrick Schumann Johnson McGarr Kaminski & Shirley in Austin, Texas, and author of Texas Homeowners Association Law. "But it typically doesn't apply to homeowners associations attempting to collect a debt themselves. It applies only to debt collectors, which are basically third parties attempting to collect debt owned by somebody else.
"In addition, management companies typically aren't subject to the act, either," adds Cagle. "There are cases out there that conclude that management companies aren't debt collectors but debt servicers. A debt collector is someone who collects debt when it's past due. A servicer collects debt whether it's past due or not. Because management companies are often involved in sending out invoices and aren't strictly involved in only the collection of debt, courts have held they're really only servicing the HOA's account."
That said, the interpretation of the FDCPA may depend on the courts applying the statute, with some applying it differently than the majority of other courts. In addition, your own state may have its own version of the FDCPA that does apply to your association's collection activities.
The FDCPA allows consumers to recover $1,000 if they can prove a debt collector has violated the act. That's in addition to any actual damages they've suffered, such as the loss of a job because of a flurry of phone calls to an employer. Consumers can also recover attorneys' fees if they prevail.
What types of activities violate the FDCPA? Get details, plus tips on how to avoid stumbling into a claim, in our new article: What HOA Board Members Need to Know About the FDCPA.
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Matt Humphrey
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