This month in Collections Corner, we will return to an issue we first addressed in our December 2017 Newsletter – reporting delinquent homeowners Community Association debt to the credit bureaus (enclosed). To briefly recap the contents of that letter, our office became aware of a company advertising services to report delinquent homeowners on behalf of a community association. Our office conducted research and identified a few issues that lead us to recommend not reporting delinquent homeowners. For example, federal laws for credit reporting impose investigation obligations on the creditor who provides the information, opening new avenues for delinquent homeowners to sue a community association. Additionally, we are not swayed that reporting delinquent homeowners actually increases the efficiency of collections.
Since our last communication regarding credit reporting, some of our clients have opted to begin reporting homeowners through this company. As part of the company’s advertising is that the fees charged for their services – $25.00 per delinquent homeowner per month – can then be assessed against the homeowner and collected like any other cost normally assessed (i.e. court costs, lien recording fees, etc.). While we have serious reservations about credit reporting, our clients are of course free to take that action should the Board determine it is in the best interest of the Community. Collection of the $25.00 fee, however, is another matter, and we have made the decision that our office will not collect the $25.00 monthly fee for credit reporting. We did not come to this conclusion lightly, and did so after extensive review and conferring with four of our peers in community association law, each of whom agreed with our analysis.
The major issue is that the costs of reporting for the entire community are borne by the delinquent homeowners. We cannot argue that the $25.00 monthly fee is a collection cost under this scenario. In this situation, where it is the entire community’s payment history that is being reported, it is an operating expense, not a collection cost. Even if delinquent homeowners were the only ones reported, we do not believe this charge would constitute a cost of collection as defined by the Condominium Act and the majority of our communities’ governing documents. Accordingly, we feel the potential liability to our clients, management companies, and our office under the Fair Debt Collection Act (“FDCPA”), the Fair Credit Reporting Act (“FCRA”), and relevant Maryland statutes make it impossible for our office to try and collect these fees on behalf of our clients.
There is the potential that our clients could individually amend their governing documents to permit the recovery of credit reporting costs. This is something we would be willing to assist our clients with, and then, with clear authority to collect those sums, we would be willing to proceed. But, without clear authority, it is our position that attempting to collect the same violates various state and federal collection laws.
Please contact the managing attorney for collections, Tim Carey, at [email protected] or 410-535-6940, ext. 133 if you have any questions about the allowed interest rates. Additionally, if you would like to discuss amending your documents to ensure your community is able to collect credit reporting fees, please contact Lauri Corley at [email protected] or 410-535-6940, ext. 106.
