HOA debt collection practices

Let me say right at the start that my non-lawyer research into homeowner association lawyers as debt collectors was very productive. The attention of attorney generals, the courts, and state legislatures needs to be directed to fully investigate this area, because the existing laws, designed to protect consumers from abuse, fall quite short when it comes to HOAs with their laissez-faire and free-wheeling acts not accountable to the state. And that includes their adhesion “contracts” favoring the HOA. The consumer members of the associations need heightened protections.

HOA member debts have been declared consumer debts under FDCPA (Fair Debts Collection Practices Act), and attorneys who regularly collect debts are debt collectors. Generally, however, the HOA is not seen as a debt collector. While state laws may exempt attorneys as debt collectors, but not, as Arizona statutes state, “when engaged in the regular course of their respective businesses” — that’s when practicing law not when collecting debts as many lawyers clearly state on their dunning letters and websites. CAI attorney Maxwell was acting clearly as a debt collector in the 1999 Arizona Caron v. Maxwell case, but the HOA was not so acting.

So, what can and cannot debt collectors do? First, it appears they can add attorney fees if the law or member-HOA agreement allows it. And they generally say so, but to the HOA not to the attorney! Is it legal for an attorney to say that the debtor owes the attorney the money, directly, or that continued disputing of the debt will result in increased attorney fees? I wonder. How does the attorney really know that the debt is correct? It seems from my experience, many attorneys just take the word of the HOA or its management firm that the debt owed is valid, and that the amount is correct. I have seen claims where the HOA or it management firm rejects checks without offering any justifiable reason. Or that the board will not talk to the debtor, sending him to the attorney, and the attorney says to the debtor, “You are not my client go away” Or the attorney is not compliant with the debtors questions for info, yet keeps tacking on attorney fees.

What does the law have to say about debt collector conduct? Let’s look at some of the Arizona statutes and Arizona Administrative Code governing Collection Agencies, as a representative example (emphasis added),

R20-4-1518: A collection agency’s records shall document each client’s account in writing. The records for an account shall include either a written agreement between the client creditor and the collection agency, or a written direction from the creditor to the collection agency concerning a specific debt placed for collection. . . . The records for an account shall separately state: . . . 2. The terms or rate of compensation paid to the collection agency . . . .

R20-4-1521. A collection agency shall give copies of its evidence of the debt to the debtor or the debtor’s attorney on request. After providing the evidence, but before continuing its collection efforts against the debtor, the collection agency shall investigate any claim by the debtor or the debtor’s attorney that: 1. The debtor has been misidentified, 2. The debt has been paid, 3. The debt has been discharged in bankruptcy, or 4. Based on any other reasonable claim, the debt is not owed.

Under the statutes, ARS 32-1001 et seq., the agency must provide the debtor, upon request, with copies of any document relevant to the debt or its collection. The debtor also has the right of access to the collection agency’s books and records regarding the debtor or the debt. The collection agency has a duty to investigate debt disputes if the debtor has a reasonable claim that s/he does not owe the debt.

What is particularly disturbing is the attorney’s activity for collection of fines as a reslut of a violation of HOA rules or documents, when the attorney well knows that the member is not given his day in court to contest the alleged violation. As we know, including the attorney, all the HOA is obligated to do is, “upon an opportunity to be heard.” Period! While the attorney is acting in the capacity of a debt collector and is obligated under R20-4-1521, he still is an attorney, and has the the further duty under the Rules of Professional Conduct and Rule 11(a) of the Civil Procedure to conduct a reasonable investigation into the alleged violation.

The relationship between the HOA/management firm and the attorney-debt collector must be subject to proper investigation by the appropriate authorities, the attorney general, finance department who regulates collection agencies, or the legislature, and necessary corrective actions taken.

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Published in: on January 23, 2010 at 3:50 pm  Leave a Comment  

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