The Fair Debt Collection Practices Act and HOAs

I had recently seen in one thread (as well as others over the years) that HOAs are somehow exempt from the Fair Debt Collections Practices Act (FDCPA).

I was aware of some court cases that have determined that an HOA's attorney attempting to collect assessments from a homeowner would indeed be considered a debt collector (Fuller vs. Becker & Poliakoff, not to mention a 2006 change to the law removing the exemption), meaning that if the HOA's attorney were to attempt to collect unpaid assessments on behalf of the association they would have to abide by the FDCPA, but I would think that in some instances an HOA itself would be considered a collections agency as well. While the FDCPA is designed for third parties, it's definitions of a "debt collector" can be somewhat vague. There are also some state laws that expand on this and may place further restrictions on the original creditor.

Here is the definition:

(6) The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Not¬withstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempt¬ing to collect such debts. For the purpose of section 808(6), such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include—
(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;
(B) any person while acting as a debt collector for another person, both of whom are related by com¬mon ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;
(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;
(D) any person while serving or attempting to serve le¬gal process on any other person in connection with the judicial enforcement of any debt;
(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquida¬tion of their debts by receiving payments from such consumers and distributing such amounts to credi¬tors; and
(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity
(i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;
(ii) concerns a debt which was originated by such person;
(iii) concerns a debt which was not in default at the time it was obtained by such person; or
(iv) concerns a debt obtained by such person as a secured party in a commercial credit transac¬tion involving the creditor.


I would use my neighborhood as an example. The original covenants and restrictions "urged" homeowners to establish a homeowners association to aid in enforcement but it did not require one to be formed. One section of the neighborhood did in fact incorporate a HOA. In the Articles of Incorporation for that HOA it stated that one of their principle purposes was "to fix, levy, collect, and enforce payment by any lawful means, all charges or assessments pursuant of the Declaration; to pay all expenses in connection therewith."

One could interpret the law to consider the HOA to fall under the FDCPA because it had stated its primary purpose would be to collect debts on behalf of the homeowners (who were urged to form it for that purpose).

I would think this situation would be more rare and would probably affect associations with poorly worded documents.

Tim, you are correct.

The key phrase in the law and in that definition is "due another"... (one must read the entire law, including the scope section and preamble).

If the association is attempting to collect a debt owed to the association, they are part of the first two parties to the debt (the debtor, being party one, the debtee (the HOA) being the second party). So, the HOA is not collecting a debt owed to someone else, they are collecting a debt owed to themselves.

The Debt Collection laws apply to THIRD PARTY collectors (those collecting a debt not owed to THEM, but to someone else). That means if the HOA has their LAWYER do it (as a business), he is a third party collector (and covered by the act). If the HOA contracts some debt collection agency, they are a third party, and covered by the act.

But, if the HOA attempts to collect on a debt owed to the HOA, they have a lot more options than 3rd party debt collectors.

Caveat: it gets a little grayer if the lawyer simply provides advice/forms/letters for the board to sign and use to collect.

Yeah. That one could get down to a question of who licked the envelope?

Our HOA has spoken to a large, local, real estate law firm that has a division that works solely with owner associations. One section of that division works with Associations to collect back dues.

Without a lot of detail, the law firm can charge owners direct for specific actions. As an example, the 2nd step in the process is they charge the owner $495.00 for filing a lien and beginning foreclosure. To stop such, the owner must pay all back dues to the association plus $495.00 to the law firm. The HOA sees no part of the $495.00 nor does the HOA guarantee/pay it to the law firm.

Well, that was easy to mess up. Let me try again:

Therein lies the problem because the association did not agree to pay the attorney's "collection letter fee." In fact, the association hired him specifically because the cost would be billed to the delinquent owner and never to the association.

Bleh, armchair lawyers.

One can read laws and draw any number of conclusions. One could read the monopoly laws and say it applies to an HOA because there is only one HOA. LOL. Its simply not the spirit of the law when it was created and a judge will simply laugh at you because it does not apply.

I would partially disagree. My association's stated purposes include debt collection. They do not, however, collect debts owed to other entities. I guess the concept I was exploring is that the covenants and restrictions are a contract between homeowners and in some instances an association (in the example I gave the contract was between homeowners with the option to create an association for enforcement - debt collection). The contract grants a certain level of authority to the association, which in turn acts on behalf of the homeowners so the foundations of any debt owed lays with the contract between the homeowners.

I doubt this line of reasoning would work in court but it I think it would be an interesting angle to take and not very far fetched.

For what reason?

But your association exists to run/maintain the association. The purpose of your association was not created to collect debt.

Not exactly true.

Their purpose is what you posted at the very beginning of this thread and repeated in your latest post:



Per the CC&Rs, the Association was formed to enforce the CC&Rs.
The Articles of Incorporation establishes that the Corporation known as HOA,INC. may collect assessments for the specific purpose of performing that service "enforcement".
Providing that service also incurs the expense of administrative costs, insurance, etc.

Again, the debt (assessments) is owed to the Association for providing the service of enforcing compliance with the CC&Rs.
The Article of incorporation states that the Corporation may use all legal means to collect said debt. Even if the Articles didn't specify that, the fact that a corporation is a legal entity under the law gives the corporation this right.

If you disagree with what I and others are saying we will likely have to agree to disagree.
If you want to prove which interpretation is correct, your free to petition the court for a definitive ruling.

Kevin is still beating the same drum. Most of his posts come right back to the same claim concerning his HOA.

Here's a Georgia case:

http://www.condolawnj.com/wp-content/uploads/2013/01/Liberty-Case-Managers-not-Debt-Collectors-02798503.pdf

In theory that would work. Like I've posted before, despite not being a member the board determined they had the authority to fine and assess everyone.

Do fines exist in voluntary associations?