Fair Debt Collection Practices Act

(00:01) Speaker: It's time for AMG's Community Leaders Series podcast edition. Over the last three decades, AMG has worked to make the role of community leaders more effective and less of a headache. Seminar topics are a response to which our executive board members have requested. And now here's your host and CEO of AMG, Paul K. Mengert.

(00:22) Paul K. Mengert: Welcome, everyone. This is AMG's 2024 Community Leaders Series podcast edition. In today's episode, we will be discussing the crucial topic for HOA boards of the Fair Debt Practices Act. We are thrilled to have Steve Black, a lawyer and partner with Law Firm Carolinas, as our special guest, to provide insight on this essential subject. Steve, welcome back to our podcast.

(00:49) Steve Black: Thank you, Paul. Glad to be here. Thanks for having me.

(00:51) Paul K. Mengert: For our listeners who may not know Steve, he is a lawyer who practices in both North and South Carolina. He heads up Law Firm Carolinas Assessment Collection Practice. Steve's a regular speaker for the Community Association Industry, related to community associations, condos, homeowner associations. He's a regular advisor to a lot of boards across North and South Carolina and has 20 years of experience he brings to us today. So, Steve, we're really pleased to have you back. I want to jump right into the Fair Debt Practices Act. And I know over the years we've talked to a lot of boards about how important this is. But let's just start with, uh, explaining what is the Fair Debt Practices Act and how do condominium and homeowner associations, what do they need to understand about it?

(01:53) Steve Black: Yeah, thank you Paul. Yeah, the there's a couple of different statutes that apply to collecting homeowner's association assessments. And the big one is the Federal Fair Debt Collection Practices Act, the FDCPA, we call it, and that is a federal statute that applies across the country to all homeowners’ associations that are trying to collect their debts through a third party. In other words, if you use a law firm to collect the debts, or if you use a collection group to collect the debts, then this FDCPA applies. There is also a state in North Carolina and a South Carolina version of the same or similar type statute. So, it's important to follow all of them. The FDCPA is basically a consumer protection statute, and so was the North Carolina and South Carolina Debt Collection Act. So, I'm going to kind of all wrap them up into one term of FDCPA Fair Debt Collection Practices Act for today. But they all they all kind of have a common theme, and that is that you can't overly aggressively pursue debts, consumer debts. Now just kind of an interesting nuance, Paul, is that it's consumer debts only. Meaning if a corporation has a debt, it may not apply, but a consumer debt HOA dues are absolutely a consumer debt in almost every case, so they all do apply. And the consumer protection part of them are you can't abuse debtors, you can't be overly aggressive with debtors. And there's kind of a long laundry list of things you clearly can't do. Now here's the interesting part for homeowners’ associations. Obviously, we don't abuse homeowners, okay, to get their money. We don't call them at work to get their money. We don't do a lot of the things that the FDCPA is designed to protect against, okay. So, you can kind of carve those off because we just don't do those things, but there are a couple that happen far more often than I would than I'm comfortable with, and just unintentionally. You know, boards don't mean to do it, but they trip over these, these kinds of the key ones. The two parts of the FDCPA and the state acts that boards unintentionally trip over most often are publishing people's debts, okay. The statute says you cannot unreasonably publish people's debts. Well, of course, Steve, we're not going to unreasonably publish people's debts. But I get this question probably three times a month during the summer. Uh, Steve, we want to publish the list of delinquencies at the pool, okay. What is that really doing? That's really trying to get paid through kind of shaming or embarrassing people. And I think that is going to be a violation of the FDCPA. So, it's that kind of publication that can really get associations in trouble. And the other one, and again, almost always unintentional, is to try to collect debts that may not be valid, okay. And that kind of breaks into a couple of different categories. But one is just charging an assessment that's not owed. And that happens most often when let's say you have a condo, the upstairs unit owners hot water heater leaks, costing the association $800 to rush somebody over there and fix it. Well, let's make that person pay it. You know the person in that unit, let's make them pay it. Well, sometimes you can do that. Sometimes you can't. If you can do it, great. We'll collect it. If you don't have the legal authority to do that, and you put it on their ledger and you go try to collect it, that is that may be an invalid debt, and a violation of the Fair Debt Collection Practices Act and the State Act. So, the kind of the overarching lesson there is the easy, the kind of routine things that we collect, dues, late fees, interest, you know, those are almost always authorized and supported. But it's when you get these kind of weird things, like the hot water heater damage that we plopped onto somebody's ledger. That could be a potential violation.

(06:06) Paul K. Mengert: Well, Steve, that’s extremely interesting and certainly has been my experience that where association leaders get tripped up is often unintentional. Don't go by their house too late at night, don't call them at work. As a matter of fact, my main suggestion would be leave the collections to the professionals. Let your lawyers handle that because it, you know, potentially is really a minefield of problems that you could inadvertently get into. Certainly, you don't want to publish the names. And I would say a couple times a year we get that as, I've got a great idea how we can we can get, you know, Joey to pay up. We'll just put his name up on the mailbox that he hasn't paid. Like they do at the country club. Well, the homeowner’s association is a different class of debtor than a country club. So, we can't do the, can't do the same kind of, same kind of things.

(07:09) Steve Black: Yeah.

(07:10) Paul K. Mengert: And you run into that?

(07:11) Steve Black: We do. And I'm glad you brought that up. That's one that I meant to mention is you want to be a good neighbor. You want to be a good volunteer. And so, you want to go talk to Susie about why she's three months behind on her dues, and hey, Susie, we don't want to send you the nasty letters. Susie, you know, go ahead and pay. You know, making that outreach, you know, I think that is very, very dangerous, as Paul mentioned, you know, keep it with the professionals that do this, because although you have every good intention of talking to Susie about what she owes the association, my experience is having done this 25 years, Susie's going to hear something different than you said. Susie's going to think you were harassing her and intimidating her and showing up at her house to talk about her debts, and that can get you into trouble. So, no good deeds.

(07:59) Paul K. Mengert: There's a reason we keep these things in writing.

(08:02) Steve Black: Absolutely. Absolutely.

(08:04) Paul K. Mengert: Steve, hold that thought. We're going to go to a AMG Community Leaders Series newsbreak, and we'll be right back.

(08:16) Speaker: And now it's time for your HOA Solutions Today newsbreak.

(08:20) Newsbreak: More than 650 condo owners at Florida's Commodore Plaza are concerned about having to leave their units due to a past due, 40-year building recertification and an upcoming Miami-Dade County Unsafe Structures hearing. Residents have faced a lack of transparency from the COA and have filed complaints with the state, which has yet to respond satisfactorily. Lawmakers are exploring changes to the new condo law requiring reserve funds for structural repairs to help prevent residents from becoming homeless due to financial strains. Let us know your thoughts by leaving a comment at HOACommunityleaders.com.

(09:00) Paul K. Mengert: We're back. I’m Paul K. Mengert here with Steve Black discussing the Fair Debt Practices Act, often known as the FDCPA, if that's not a mouthful. Steve, what are some of the potential legal risks and consequences for community association, associations and their leaders or even their management companies if there is a violation of the FDCPA?

(09:32) Steve Black: Yeah, the FDCPA is drafted to be a very, very heavy hammer and the state counterpart statutes as well. Meaning when you violate them, they're violated. Okay, there's not much arguing. It's very clear about what a violation may be. So, when you have a violation, there is a statutory penalty of up to $1,000 per violation, okay, and you may not think that's not that bad. You know, maybe that's worth the risk. It is not. It is not. And here's why. If you have violated the FDCPA somehow, some way, and there's one homeowner that you did it to, chances are it's part of your pattern and practice. And so, chances are there might be dozens, if not hundreds, possibly thousands of people, homeowners, that you've done this to. So, if you take that and multiply it by up to $1,000 per person, fine. That gets to be real money, okay. It's class action is really what I'm talking about. You know, they can classify them as a class and then and then come after you pretty strongly. So, here's the hardest part about the FDCPA. There’s not a lot of arguing about it. Meaning, if the letter leaves the office and it's got the wrong amount in it, there's an invalid charge in there. Maybe there was a fine that was imposed that was too much by the statute. Maybe that hot water heater leak repair wasn't valid. As soon as that letter leaves the attorney's office, it's a violation. Okay. There's not a lot of arguing about it. Then I mentioned the class action threat. There are FDCPA law firms, that's all they do is hunt around for entities, not just HOAs, but any debt collector. And they scrutinize very carefully under a microscope the practices that they use, the policies they've used, the balances they've tried to pursue. And if they find a violation, you're on their radar then. And that that law firm is designed to sue over the FDCPA. And they do. Not only not only that, you know, if you've gone out and collected debts that aren't valid. Again, almost always unintentionally, then there's reputational damage to your association. You know, the board's going to have to stand up in front of the membership and say why they had such a huge legal bill to fend off this Fair Debt Collection Practices Act. Or why the association is being sued for a Fair Debt Collection Practices Act violation. So, there's some there's some kind of political and reputational problems that you could have. The legislators also always watching and if an association gets picked up on the radar of an FDCPA law firm and becomes a defendant in an FDCPA case, chances are somebody in Raleigh or somebody in Columbia, South Carolina, they're going to hear about that. And the legislators may perk up and they may find that, uh, an association is abusing homeowners or pursuing debts too aggressively and they may change the law on us, the state law on us, and make it harder to do what we need to do to get your money to you for the association's operation. So, kind of this overarching regulatory scrutiny, you know, we've got to watch that as well. And one that a lot of people don't think about. Okay. This will kind of sneak up on us sometimes. I've talked about the FDCPA. That's the federal statute, very strict, heavy penalties. You've got the state, North Carolina and South Carolina version of that, okay, very similar. Also, a very heavy hammer. But then you also have a state claim for unfair and deceptive trade practices, okay. And that's also a nasty statute that says if you are basically doing unfair things in commerce, collecting debts that aren't valid, collecting that hot water heater charge that you shouldn't have, you know, collected, or the fines that you didn't have a hearing over or a proper hearing for. All of those kinds of charges could be an unfair and deceptive trade practice which comes with it having to pay their attorney's fees, punitive damages, treble damages, triple the amount of damages. So, my point to all of that is all of these statutes are really designed the same, and that is to be very, very protective of homeowners and slanted against debt collectors to make sure that we do everything we possibly can to only collect debts that are valid.

(14:04) Paul K. Mengert: A lot of concern in this area. Again, I'll kind of focus back on the way to stay out of this trouble is when the association goes to collect its money, call your lawyer. This is not an area where self-help is a good idea. Thank you for sharing these thoughts. We're going to go to another HOA Community Leaders Series newsbreak, and we'll be right back with our special guest, Steve Black.

(14:37) Speaker: And here's another HOA Solutions Today newsbreak.

(14:41) Newsbreak: Disciplinary hearings in California aren't like criminal court proceedings. So, an accused owner can't demand that an HOA require the complainant to be present at their hearing. The procedure for such hearings and the due process are meant to be simple. So, there's no right to a jury or counsel and no right to cross-examine witnesses. However, as a best practice, HOAs can implement written hearing procedures so owners and board members know what to expect, says Kelly Richardson, a fellow of the College of Community Association Lawyers. To read the full story, please go to HOACommunityleaders.com.

(15:19) Paul K. Mengert: Welcome back folks. I'm Paul K. Mengert here, discussing the Fair Debt Practices Act with Steve Black, an attorney with Law Firm Carolinas that specializes in collecting condominium and homeowner association fees and assessments from delinquent owners, as well as giving other general guidance to community association board of directors. Steve, what strategies and practices can community association leaders implement to ensure they are in compliance with the federal Fair Debt Practices Act, while still managing the delinquent accounts and collections? And how do those sometimes compete with things you see in the articles of incorporation, bylaws or community covenants?

(16:08) Steve Black: Number one, leave it to the experts, okay. Please don't go knocking on people's doors asking them about, you know, why they haven't paid. Don't leave them notes. I would recommend that you have your collection process reviewed every so often just to make sure, you know, those things tend to evolve over time and maybe go off in the wrong direction. So have them looked at, you know, by an expert that does this kind of work. But, you know, Paul, one of the interesting things about doing association collections, and I've been doing it for a long time now, and I've been on the board of directors of every association my wife and I have lived in for 20 years. So, I've been yeah, I've been at the table, you know, I've been at the table talking about Susie's debt and Bob's debt and why aren't they paying? And, you know, and there's a unique element that I've learned for HOAs and debt collection. For some reason, there is an emotional component to collections in the HOA world for a board of directors, okay. And again, I was there, I felt it, you know, I'm paying my dues, you know.

(17:12) Paul K. Mengert: Steve, you know, I have the same empathy you do because I've also served and actually right now, serve on a condominium board of directors where we're not the manager. So, I have a lot of empathy to what community leaders go through, as I know you do. I didn't mean to interrupt you, but I, I do think that gives us a special lens a lot of people don't have.

(17:33) Steve Black: Oh, absolutely. And every day I have that that, that view. But, so, I've been there and I've gotten that twinge of, now, why isn't Susie paying? Why isn't Bob paying? I mean, I see him driving through in their nice car every day, you know, back and forth to work, you know, why aren't they? I had to pay mine. Why aren't they paying theirs? We're tight on money. We need them to pay. And so there's kind of an emotional component to people not paying. And that can sometimes make you make decisions or stronger decisions than you would normally for a good business judgment decision, which is what the law standard is, is a good business decision, not necessarily a good neighbor decision. So, I think that it’s important to recognize that people are, boards are less tolerant, I guess, of non-payers than they would be in other industries. So just recognize that. That was piece number one as a strategy. I'm sorry, that's piece number two. Piece number one was get your policies, make sure they're there, they're approved, or make sure you have an expert look at them, make sure they're in line, keep the emotions out of it. That was my point for point number two. Keep your emotions out of it. It's a business. I'm going to drill down on that a little bit more because it's so incredibly important. When we go to court and we're before the judge or the clerk, that comes out, okay. The way that the association has pursued collections, kind of the emotional tied to it can come out in court, and that's not a great thing. So, steer clear of that please. Next would be to obviously educate and train, which you know, thank you all for taking your time to listen to this today. This is exactly what we're talking about. The other big piece Paul, and I'm going to stress this even more, is consider payment plans for the homeowners. Obviously, you want to do that, that's fine. But also, when it comes to fines, okay, when it comes to fines, there is a, there's a universal practice, I would say, of boards letting fines run very, very high. You know, it's not $800 in fines. It's $8,000 in fines or $22,000 in fines, or $35,000 in fines because of the boat, okay. Now, should you fine to enforce? Absolutely. As long as you do the process right. Fines are going to be enforceable and collectible. But my point is it kind of goes to that emotional factor again, is my theory is, that if you that if you fine to the point of $20,000, $25,000, $50,000, that is not a whole lot more leverage than someone who you fined $2000 or $3000, as long as you push it and make them pay it, or negotiate it and get it resolved. My point is, if you have fines on the ledger that are $10,000, $20,000, $30,000, that drives homeowners to lawyers. They go to a lawyer and say, what am I going to do here? And when the lawyer starts looking at it, they may look up under the hood and look for FDCPA violations or the state violations.

(20:41) Paul K. Mengert: So, it's kind of inherently what they have to do when you get to that point. You've got to find a, rather than finding a solution, you want to find a defense. So, I agree with you very much. When you know, if you get a fine, even a couple hundred dollars, you know, going much beyond that, my experience is it rarely helps.

(21:03) Steve Black: Right. Absolutely. I will tell you that we have been, we have had to answer for huge fines of $20,000, $30,000 for a boat or a car that's inoperable, and the judges don't like that. They don't. And I'm telling you if the fine is $800 or maybe $1,000 and we go push for it and we go try to collect it, you know, if somebody has to pay $800 because of their inoperable car, they're going, well, you would think they would change their conduct, but just no. The whole point of that was when you get these really big numbers, that just begs somebody to look up under the hood and look for a fair debt collection practice problem or an unfair and deceptive trade practice problem. And we really want to stay off that radar if we can.

(21:48) Paul K. Mengert: I just totally agree, Steve. It's very much been my experience if the fines get beyond a couple a couple hundred dollars, I think it's time to talk to your lawyer about what other options you have, because you don't want to back somebody into a corner where they basically try to get out of having to pay thousands of dollars, have to accuse the association of wrongdoing. It's not really that they believe there's any wrongdoing, they're just looking for a way to try to get out of their issue. And, you know, sometimes these things do become too passionate. I think good directors tend to not get too excited about things, but take it as a business decision, not as a personal affront. And listen, serving, I'm glad you mentioned this earlier, serving as a condo director, you know, I understand that we work for free. We don't do our work as a director for any pay. We're paying the same thing everybody else does. We're just trying to help the association do what's right. And when other people do what's obviously not right, like not pay their assessments, it can make you a little mad, but we really have to set that aside and work for the better, better good of the community.

(23:07) Steve Black: Yeah, you can't see this because it's a podcast, but I'm smiling from ear to ear because you said it perfectly that, there’s that kind of emotional connection to it and it's hard to get away from.

(23:17) Paul K. Mengert: It really is. And I think we, you know, you know, we've spent a lot of time at AMG talking about this and trying to better understand it. But when we deal with things that are always people's homes, it's a more passionate, it's more emotional than if you're dealing with something that's, you know, just like a rental property or, a rental building. But when it's your home, it's really, it's something you have, you know, kind of special feelings to, and I think particularly community leaders, it's what makes so many great community leaders is, we see, I see so many people just do wonderful things for their community. And, you know, I feel like part of my job as a, as a community manager is to try to help these great volunteers that are doing great things in their community avoid the pitfalls which bring us to things like today, where, you know, no director wants to get their community into a Fair Debt Practices Act problem, but out of just trying to collect the money, I've seen it happen. So, we really, we do have to be careful. Steve, we've got to go to our final newsbreak, but we'll be right back with more of HOA Community Leaders Series after this quick newsbreak.

(24:40) Speaker: And now our final HOA Solutions Today newsbreak.

(24:44) Newsbreak: A 2024 California law allows homeowners to divide their property and sell ADUs like condos, meaning sellers and buyers would need to create an HOA and decide on ways to take care of the property. The law aims to make housing more affordable, but it could lead to drawbacks such as overcrowded neighborhoods, parking challenges, and a multiyear conversion process. Also, some cities are unprepared for the law's implementation, says real estate agent Lindsay Harn. Let us know your thoughts by leaving a comment at HOACommunityleaders.com.

(25:19) Paul K. Mengert: Well, welcome back I'm Paul K. Mengert here discussing the Fair Debt Practices Act with Steve Black, one of the leading collection attorneys for community associations in North Carolina. As we wrap up our session today, I want to ask Steve to kind of give me three takeaways for directors about the Fair Debt Practices Act.

(25:46) Steve Black: Yeah. If no one hears anything else today but this, here are the three. Number one, collecting debts for an association that does trigger the Fair Debt Collection Practices Act, the State Debt Collection Practices Act, and there are other claims, unfair and deceptive trade practices that could be triggered. So, we're talking very, very serious, very, very strict laws, that we want to try to stay away from. Number two is there are stiff penalties for violating those statutes, you may end up having to pay the homeowner's attorney's fees. There could be triple damages. There could be punitive damages. Uh, there could be a class action case. So, this is at the top of the list of seriousness. And the third takeaway would be take the emotions out of collections to the to the greatest extent you can and know that racking up very large balances for homeowners, whether it's just letting them not pay for years and their balance gets big, or imposing fines that make their balance get big, or other charges, that makes their balance, balance very large. That just invites them to go to a lawyer to look at it and then try to dissect if there's a fair debt collection practice claim or a violation of any of these other consumer debt collection statutes.

(27:02) Paul K. Mengert: Steve, I appreciate that. I think you said it well. I, um, my three would be, uh, play nice. Number one, be nice. You know, don't engage in, you know, any kind of, nefarious or pushing the envelope kind of practices in, trying to collect the money. Certainly, don't publish the names. Keep the collections information confidential, and be a little careful about that. If it's in your minutes, that needs to be deleted, or, you know, marked through before publishing the minutes. Number two, use attorneys for collections. I mean, it's the attorney's fees are recoverable by statute. You'll get the money back from the debtor. You know, in fact, I've seen some collection cases where they've tried to you where associations have tried to use collection agencies that may not be recoverable, but attorney's fees, you know, clearly are recoverable in North and South Carolina and most other states, for that matter, although I don't speak for any others. And then the third thing I would say that we touched on a few times here that I've just found to be incredibly important, not only with fines, but also assessments, is don't wait. When somebody is 2 or 3 months behind, that's the time to be collecting the assessments. Don't wait till it becomes a large and confusing amount. If somebody is carrying a balance of a month or two at least once a year, you need to go through and deal with, why is somebody a month behind, even though it may not be enough to trigger getting super excited about it, it really looks bad if you're going to somebody in 2024 and say, hey, you know you missed a payment back in 2021 and that's why we're coming after you. So, it really is important to monitor the accounts receivable. And, you know, if your manager hasn't taken a look recently at even small balances on the AR report, just don't let these things build into a big amount because I'm with Steve on, I've been to court, I've been to the clerk's office and when it when these things turn into a big amount, the judges and clerks are always suspicious of them. Well, how can he owe $3,000? And it's just not a good look to say, well, we just didn't bother to go after him for two years. And frankly, I did a talk once for a group of board members about how it's nicer to go after someone who owes 30 days than three years because the guy who owes 30 days can really pay it. There's a good chance the person who owes three years can't pay it. They're going to have to get a second mortgage, or sell their car, or do something radical to be able to pay sometime. So, don't wait. So be nice, use attorneys and be proactive. Don't let these balances build up. Steve, this has been great. I'll let you have the final word. As always, it's great to have you as a guest on the AMG Community Leaders Series podcast edition.

(30:19) Steve Black: Yeah, well thank you, Paul. Thank you for having me. And thank you all who are listening, who do step up for your memberships and serve on your board of directors. It's not easy. You know, it can sometimes be very difficult, but it's so incredibly important that you do it and that you train and learn. And so, thank you for being here. And I hope I get to come back sometime. Paul.

(30:40) Paul K. Mengert: Steve, thanks again. Everyone, have a nice day.

(30:43) Speaker: Thanks for listening to AMG's Community Leaders Series podcast edition. To find out more information on this episode, please visit HOACommunityleaders.com. This podcast is a production of BG AD Group. All rights reserved.

• Be nice. Don't engage in any kind of nefarious or pushing the envelope kind of practices in trying to collect the money/debts owed.

• Use attorneys for collections.  Always best practice to leave matters such as this to the professionals.

• Don't wait. It is much easier to collect a debt of one or two months rather than waiting until the amount becomes too large and too unmanageable.

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