Are HOA Debts Subject to the FDCPA?

The Fair Debt Collection Practices Act (“FDCPA”) is a federal law that establishes protection for consumers from abusive debt collection practices. The FDCPA covers debt used for “personal, family, or household purposes” incurred by a consumer.   Generally, when people think of the FDCPA, they are considering credit card debt, third party-debt buyers, medical bills, student loans and auto loans. However, the FDCPA covers a broad range of debts.

To many people’s surprise, Homeowner Association (“HOA”) debts such as past-due assessments or violation fines are subject to the provisions of the FDCPA if the HOA retains a third-party to collect on those debts. Law firms or collection agencies are included in the definition of third-party. In a 1998 decision, the Tenth Circuit aptly described why HOA debts fall within the purview of the FDCPA:

We recognize that not all such obligations are “debts” under the FDCPA because the money, property, insurance, or services which are the subject of the transaction must be primarily for “personal, family, or household purposes.” On this issue, we also follow the reasoning of the Seventh Circuit and hold that although the assessment at issue here is used to maintain and repair the common area, it nevertheless has a primarily personal, family, or household purpose.

This decision is consistent with multiple Ninth Circuit opinions, which govern Arizona, finding the “FDCPA’s application is not limited to collection of debts arising out of the offer or extension of credit.”

Most HOAs do not collect their own debts, and for good reason. Debt collection is a time-intensive process, particularly when it involves hundreds of units or homes as many HOAs do. It should be done by an agency or firm with knowledge of HOA statutes in the state where the properties are located, as well as ensuring that the alleged violations are such that they could have a fine levied and thereafter collected.

When an HOA retains a law firm or a collection agency to pursue its delinquent debt, the HOA should determine if the firm or collection agency has a working knowledge of the FDCPA. Violations of the FDCPA can give rise to liability on behalf of not only the HOA, but the law firm, the agency, and even the individuals on the HOA board. It is important that the HOA retain a firm with the adequate experience and knowledge necessary to navigate the many regulations required by the FDCPA.  Keeping the HOA in compliance with the FDCPA while collecting valid debts is a key element for prudent HOA boards and their managers.