Q: I am on a condominium board of directors. Some of our owners are not paying their assessments and others refuse to pay fines. We sent a demand letter and the owner claims that we are in violation of the Fair Debt Collection Practices Act. Can you explain?
A:The Fair Debt Collection Practices Act (FDCPA) is a federal law intended to regulate debt collection. It does not apply to all debt collection, but only to consumer debt collection and to debt collectors as defined by the statute.
Under the statute, a debt collector is any person who uses interstate commerce or the mails for purposes of debt collection and who regularly collects or attempts to collect debts. Debt is defined as any obligation of a consumer to pay money arising out of a transaction primarily for personal, family or household purposes. That means commercial transactions and obligations which do not arise from a transaction are not subject to FDCPA.
The federal Eleventh Circuit Court of Appeals has explained that transaction implies some type of business dealing between parties. That means, FDCPA is limited to consensual transactions, where parties negotiate or contract for consumer-related goods or services. The Eleventh Circuit has ruled FDCPA does not cover obligations arising from a tort suit.
FDCPA places restrictions on communication with a debtor and requires various disclosures. Communication is generally limited to the hours between 8 a.m. and 9 p.m., local time. If a debtor is represented by an attorney, communication must generally go through the attorney. Communication at work is not allowed if the debtor collector has reason to know the employer prohibits such communication. Communication must cease if the debtor so requests, although the debt collector can notify the debtor of intent to pursue a specific remedy. Debt collectors are also prohibited from using misleading methods or communicate in a public style, such as by postcard.
Written communication is also regulated and it is the regulation of written communication that is most often the subject of claims against debt collectors. This may be because written documents are easiest to verify. Violation of FDCPA exposes debt collectors to an award of actual damages, plus up to $1,000 additional damages, attorney fees and court costs.
Debt collectors are required to provide written notice to a debtor, within five days after initial communication, containing the amount of the debt; name of the creditor; a statement that unless the debtor disputes the debt, the debt will be assumed valid; a statement that if the debtor disputes the debt, the debt collector will obtain verification and mail the verification to the debtor; and that if requested in writing by the debtor, the name and address of the original creditor will be provided, if different from a current creditor. Failure to meet that obligation is the violation most often creating liability.
Numerous court cases have held that homeowner association and condominium association maintenance fees are debts, for purposes of FDCPA (although some have ruled to the contrary.) The rationale is that homeowners become obligated to pay the assessments pursuant to governing documents of the association and promise to pay for the particular goods or services to be provided by the association.
On June 23, 2008, the United States District Court for the Middle District of Florida addressed the issue of whether association fines are debts under FDCPA. In what appears to be the first reported decision to address the issue, the court noted that other cases have held that traffic ticket fines and late fees for overdue library books are not debts under FDCPA. The court explained that association fines are similar, is a penalty for violation of rules and not the result of a business dealing or an obligation to pay for goods or services. The court ruled that association fines are not subject to the limitations of FDCPA.
Although the FDCPA excludes people attempting to collect a debt in which they were involved with creation from its mandates, liability may arise where a third party is employed to collect assessments through liens or otherwise. Florida federal court cases are in conflict over whether property managers filing liens are involved in process of debt collection, without at least one deciding collection under a fiduciary duty is property management and not debt collection.
The application of FDCPA to associations is complex. If FDCPA applies, failure to meet all of its requirements can be expensive. Associations are well advised to retain an experienced attorney in connection with any collection effort against property owners. Rather than be exposed to potential liability under FDCPA, caution should rule the day.
William G. Morris is an attorney with offices at 247 North Collier Boulevard. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.