Banking and Finance Law Daily Debt collector could collect fees for delinquent association dues directly from homeowners
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Wednesday, August 28, 2019

Debt collector could collect fees for delinquent association dues directly from homeowners

By Nicole D. Prysby, J.D.

A debt collector that collected delinquent homeowners’ association dues did not violate the FDCPA by collecting its fees along with the dues, because the homeowners had agreed to pay costs related to dues assessments and the fees were a "cost" of collection.

A debt collector did not violate the Fair Debt Collection Practices Act (FDCPA) when it attempted to collect its fees directly from homeowners along with their delinquent homeowner association dues, held the United States Court of Appeals for the Sixth Circuit. The property declaration of covenants included a clause stating that property owners were responsible for interest, costs, and attorney fees for the assessments. The agreement between the homeowners’ association and debt collector authorized it to collect the fees directly. The fees were a "cost" of collection because the fee charged to the homeowner was the amount that the association was obligated to pay the debt collector for collecting on the debt. Therefore, when the debt collector charges those fees to homeowners, it is collecting those costs to cover what the association would otherwise owe. The court rejected arguments from the homeowners that the fees were merely a contingent liability and that the "collection costs" authorized in the agreement meant only legal fees and not all costs of collection (Sparks v. EquityExperts.org, LLC, August 21, 2019, Rogers, J.).

A homeowner couple fell behind in their assessments to the neighborhood homeowners’ association. When they accepted title to the property, the couple had agreed, via a declaration of covenants, to pay the assessments, along with interest, costs, and attorney fees. At the end of 2016, the couple was behind $220 in their payments and the association engaged a debt collection company to collect the debt. The association and debt collection company had a contract setting out a schedule of fees for collection services and authorizing the debt collector to collect those fees directly from delinquent homeowners. The debt collector sent a letter to the homeowners stating that they owed $490 and that the total balance owed might include items such as collection costs and attorney fees. The collection process continued without resolution for several months, with a balance eventually totaling over $1,000. The homeowners contended that the debt collector’s attempts to collect those fees violated the FDCPA by falsely representing the character, amount, or legal status of their debt and by collecting an amount that was not expressly authorized by the agreement creating the debt or permitted by law.

The court rejected their argument, holding that the declaration expressly authorizes the collection of the fees because the debt collector’s fees are the costs of collection. The collection agreement between the association and debt collector authorizes the debt collector to charge those fees directly to the delinquent homeowner’s account, but the association remains on the hook for the fees if collection of an account is stopped. In other words, the fee schedule represents what it costs the association to retain the debt collector to collect debt on its behalf. When the debt collector charges those fees to homeowners in the first place, it is collecting those costs to cover what the association would otherwise owe.

The court rejected an argument from the homeowners that the debt collector could not legally collect the costs it claimed were due because those costs had not yet been incurred by the association and were merely a contingent liability. The association is contractually obligated to cover the costs of collection once the debt collector performs whatever service it is charging for. That the association does not pay the cost at that time—or not at all if the delinquent homeowners meet their obligation to cover those costs—does not imply that "costs" means something less than the actual cost that the association is obligated to pay. The court also rejected an argument that "collection costs" means only legal fees, not all "costs of collection." Because collection often occurs outside of litigation, it makes little sense to read the declaration to silently limit "costs" to "legal costs" associated only with litigation.

The case is No. 18- 2378.

Attorneys: Edward Albert Mahl, I (Law Offices of Edward Albert Mahl, I) for Melvin Sparks. Katrina M. Demarte (DeMarte Law) for EquityExperts.Org, LLC.

Companies: EquityExperts.Org, LLC

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