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From Banking and Finance Law Daily, January 17, 2017

Collection of homeowner association fees was covered by collections act

By Richard A. Roth, J.D.

A law firm that was attempting to collect a homeowner association assessment on behalf of the HOA was attempting to collect a debt, not just enforce a security interest, and thus was required to comply with all of the requirements of the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Ninth Circuit has decided. Statements included in the firm’s demand letter also conflicted with the notice of the homeowner’s rights required by the FDCPA, the court said (Mashiri v. Epsten Grinnell & Howell, Jan. 13, 2017, Paez, R.).

The homeowner apparently failed to pay an annual HOA assessment of $385. This led to a collection letter from the firm Epsten Grinnel & Howell demanding payment of the assessment plus various collection-related fees, for a total of $598. The demand letter also included the notice of consumer rights required by the FDCPA and a state law-required warning that a lien would be recorded against the property if payment was not made.

The homeowner later paid the $385 assessment amount and disputed the remainder of the demand. Since the full amount had not been paid, the law firm recorded the lien. The homeowner then sued the firm under the FDCPA and several state laws, claiming the demand letter had overshadowed and conflicted with the notice of her rights.

Validation notice. The FDCPA requires a debt collector, either as part of or shortly after the first communication with a consumer, to notify the consumer of certain rights. Among these are the rights to demand within 30 days of the consumer’s receipt of the notice that the debt be validated and that collection efforts be halted while validation takes place.

The homeowner complained that the demand for payment within 35 days of the date of the letter overshadowed the notice of her right to demand validation within 30 days of when she received the letter.

Security interest. The law firm first claimed that it was not subject to the validation notice requirement because it was not attempting to collect a debt. The firm asserted instead that it was only attempting to enforce a security interest—the lien for the unpaid assessment. That argument failed.

The HOA assessment clearly met the FDCPA definition of "debt," the court said. Also, the letter warned the homeowner of the consequences of not paying that debt.

Moreover, there was no security interest for the firm to enforce when it sent the demand letter, the court pointed out. The unpaid assessment lien created a security interest, but the letter warned that the lien would be recorded in the future if the HOA assessment was not paid.

It is true that enforcing a security interest is not debt collection under the FDCPA, the court agreed. However, if a person who is enforcing a security interest also engages in debt collection activities, it is a debt collector.

Notice violation. The demand letter could have overshadowed the validation notice in a way that would confuse the least sophisticated consumer, the court continued.

It is not enough for the validation notice simply to include the rights listed in the FDCPA, the court pointed out; those rights must be effectively conveyed to the consumer. Other content of the collection letter cannot overshadow or contradict them.

The law firm’s letter told the homeowner that she had 30 days from the date she received the letter to assert her right to have the debt validated. However, it also warned of dire consequences if she did not pay the amount demanded within 35 days of the letter’s date. According to the court, by the time the homeowner received the letter, she might no longer have 30 days to demand validation of the debt without the 35-day deadline passing. Even if the 35-day deadline could be met, the homeowner might have had to mail her payment before the end of the 30-day validation period in order to satisfy the 35-day payment period.

There was another plausible violation, the court added. The FDCPA requires debt collectors to cease collection activities while they validate debts, but the law firm’s notice said that the lien would be recorded if she did not pay the overdue assessment and additional fees. The least sophisticated consumer could interpret that as meaning the lien would be recorded regardless of whether she asked for validation.

The state law that required the firm to warn the homeowner that a lien could be recorded was not inconsistent, the court also said.

The case is No. 14-56927.

Attorneys: Asil Marhiri (Mashiri Law Firm) for Zakia Mashiri. Anne Lorentzen Rauch, Epsten Grinnell & Howell APC.

Companies: Epsten Grinnel & Howell APC.; Westwood Club

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