Banking and Finance Law Daily Attempts to collect on partially time-barred debt did not violate FDCPA
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Monday, July 31, 2017

Attempts to collect on partially time-barred debt did not violate FDCPA

By Lisa M. Goolik, J.D.

The U.S. Court of Appeals for the Fifth Circuit has held that an attorney collecting a debt on behalf of a condo association against the debtors/owners of a condo did not violate the Fair Debt Collection Practices Act or Texas Debt Collection Act for collecting on an allegedly partially time-barred debt. According to the appellate court, no Fifth Circuit authority compelled the holding that a nonjudicial foreclosure on a partially time-barred debt violates the FDCPA or the TDCA. In addition, the debtors’ common law claims that the association was in breach of the Condo Declaration failed under Texas law, which establishes that "a party to a contract who is himself in default cannot maintain a suit for its breach." (Mahmoud v. De Moss Owners Association, Inc., July 28, 2017, Jones, E.).

Collection efforts. The debtors owned a condominium in De Moss Condominiums, which was run by a condo association, De Moss Owners Association, and managed by Creative Management Company. In August 2012, Creative sent a letter to the debtors, notifying them their account was delinquent by $1611.80 and gave them one month to make payment. The letter itemized the charges, including repairs from May 2006, April 2007, and February 2010; maintenance fees from July and August 2012; and a late penalty. The letter gave the debtors 30 days to challenge the validity of the debt or the account would be turned over for collection.

When there was no response, the association turned over the account to an attorney, and on Oct. 8, 2012, the attorney sent a letter, identifying the balance, which had increased by then to $2,171.80. The letters also informed the debtors that the debt was secured by a continuing lien against their condo and failure to pay the total amount within 30 days would result in a nonjudicial foreclosure on the lien. Page two contained a notice, in all-caps, which included the following warning three times: "UNLESS YOU DISPUTE THE VALIDITY OF THIS DEBT OR ANY PORTION THEREOF WITHIN THIRTY (30) DAYS AFTER RECEIVING THIS LETTER, WE WILL ASSUME THE DEBT IS VALID."

The debtors responded by sending in three separate checks for the maintenance fees, totaling $750, but not the full amount owed. The attorney responded with two letters dated Nov. 12, 2012, one informing the debtors that their condo would be put up for foreclosure sale, and another returning the checks.

The debtors and the attorney continued to exchange similar letters over the course of three months, and with no payment or payment plan agreed to, the attorney initiated a foreclosure sale. At no time did the debtors dispute the amount of the debt.

The debtors brought an action against the association, the management company, and the attorney, alleging common law claims and violations of the FDCPA, TDCA, and Texas Deceptive Trade Practices Act. After both sides sought summary judgment, the district court ruled in favor of the association, the management company, and the attorney. The debtors appealed.

FDCPA claims. The Fifth Circuit noted that the debtors’ "most plausible" arguments related to their claims against the attorney under the FDCPA. The debtors contended that the debt collection notices sent by the attorney were defective and she unlawfully threatened to sue to recover a time-barred debt.

The FDCPA imposes civil liability on "debt collector[s]" for certain prohibited debt collection practices. The Act regulates interactions between consumer debtors and "debt collector[s]," defined to include any person who "regularly collects . . . debts owed or due or asserted to be owed or due another." Attorneys qualify as debt collectors for purposes of the FDCPA when they regularly engage in consumer debt collection, including but not limited to litigation on behalf of a creditor client.

Although the attorney maintained an overarching defense that, when she engaged in enforcing the association’s lien by nonjudicial foreclosure, her actions were exempt from the FDCPA, the appellate court declined to address this issue, choosing instead to address the debtors’ individual claims.

Notice violations. The FDCPA requires debt collectors to provide notice that unless the consumer, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid. The Fifth Circuit could find no violation of this requirement. The letters sent to the debtor contained this notice in four places, including three times on page two.

Partially time-barred debts. The debtors also argued the attorney violated the FDCPA by attempting to collect on allegedly partially time-barred debts, contending that the charges for repairs in 2006 and 2007 were time-barred. The Fifth Circuit disagreed.

The Texas Property Code states that an association’s lien against a unit owner may include: "regular and special assessments, dues, fees, charges, interest, late fees, fines, collection costs, attorney’s fees, and any other amount due to the association by the unit owner or levied against the unit by the association."

While the appellate court could find no Texas case law identifying the statute of limitations that applies to nonjudicial foreclosure of liens on real property created to ensure the payment of condominium association fees and assessments, the court assumed arguendo that limitations barred recovery of that portion of the debt.

However, the appellate court concluded no Fifth Circuit authority compels the holding that a nonjudicial foreclosure on a partially time-barred debt violates FDCPA. While threatening to sue on time-barred debt may constitute a violation of the FDCPA, the appellate court declined to extend potential FDCPA liability in this instance due to: (1) its summary judgment posture; (2) the fact that only a small portion of the debt may have been time-barred; and (3) the parties’ hot dispute over whether in fact even that small portion was both time-barred and could not be enforced by nonjudicial foreclosure.

Texas Debt Collection Act. The debtors similarly argued that the district court erred in granting summary judgment on their claim under the TDCA. However, neither the debtors nor the court could find any authority for their position that attempts to collect time-barred debt violate the TDCA.

Common law claims. The appellate court also quickly disposed of the debtors’ common law claims for breach of contract. Under Texas law, it is a "strict" and "well established rule" that "a party to a contract who is himself in default cannot maintain a suit for its breach." The Fifth Circuit concluded the debtors’ failure to pay their balance and to make timely payments on their monthly assessments was a material breach of the Condominium Declaration. In addition, the debtors’ performance would not be prevented or excused by the association’s allegedly erroneous statements about their balance due.

The case is No. 15-20618.

Attorneys: Lindsay Lee Lambert (Lambert & Jakob, PLLC) for Ashraf Mahmoud. Valarie J. Eissler (Litchfield Cavo, LLP) for De Moss Owners Association, Inc. and Creative Management Co. William L. Van Fleet (Frank, Elmore, Lievens, Chesney & Turet, LLP) for Frank, Elmore, Lievens, Chesney & Turet, LLP.

Companies: De Moss Owners Association, Inc.; Creative Management Co.; Frank, Elmore, Lievens, Chesney & Turet, LLP

MainStory: TopStory DebtCollection LouisianaNews MississippiNews TexasNews

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