BUSINESS Real Estate

When past-due payments are overseen by lawyers

Question: When our association's board approves a payment plan for owners who fall behind on their association dues, a law firm representative called an "assessment department assistant" writes that the firm is "pleased to inform you that the Board of Directors has approved your payment offer." It says to "make the check payable to Law Firm and mail to our legal office. Do not send the payoff check to the HOA." Beneath the assistant's signature, it states, "The debt collector is attempting to collect a debt and any information obtained will be used for that purpose."

The HOA office refuses these owners' checks and payments, and they are turned away. Owners thought they were entering into a payment plan with their association, not a debt collecting law firm. Why can't owners pay at the association office? What are the legal ramifications of this law firm's admonitions? Why does the association have to pay the law firm to act as a debt collector?

Answer: Although the association does not have to pay a law firm to act as a debt collector, in doing so the board may be acting in the best interests of the association, not the owners. Titleholders who don't make waves end up with letters like the one you discuss. Without an actual name and corresponding signature, the title "assessment department assistant" is meaningless and of no use to the recipient.

Association board director duties are "nondelegable," but some areas such as collections may be performed by third parties, including attorneys. Nothing mandates that the board turn over collections to those entities, and such actions should be a last resort. Boards are encouraged to work with owners on a one-on-one basis, resolving issues quickly, fairly and empathetically. Usually the association's statutory Internal Dispute Resolution program resolves most issues. If an association has not specifically established its own procedures for resolving disputes, the default IDR procedures outlined in Civil Code sections 1363.830, 1363.840 apply.

Absent restrictions to the contrary in the association's covenants, conditions and restrictions, delinquent titleholders may enter into a payment plan with their board to pay past-due association-related fees and/or assessments. (Civil Code section 1367.1)

Caveat: Before committing to any plan, ask whether it's a payment plan with the association, collection company, law firm or an individual. What are the written terms and duration of that plan? Are there penalties for breaching the plan? Always have an attorney review these documents before signing.

Nothing prevents owners from proposing their own plan or editing their association's plan, for example inserting a clause barring the association from "assigning" that debt to a third party (collection company, law firm, individual) or from charging extortionary fees for late payments or even breach.

Once the association retains legal counsel to handle collections, communication with the owner ceases and the owner is directed to send all correspondence, including payments to legal counsel. Other associations are equally successful in handling payment plans on their own, saving the association money. Often, that personal involvement proves more successful in collecting money than using heavy-handed measures.

While the federal Fair Debt Collection Practices Act (15 U.S.C. sections 1692-1695) may apply only to third-party debt collectors, California case law and the state's Rosenthal Fair Debt Collection Practices Act (Civil Code section 1788, et seq.) are clear that associations, as well as any law firm hired to collect their debts, are subject to fair collection guidelines detailed in state and federal law.

Actions by the association or its representatives that harass, intimidate or embarrass the debtor potentially subject the board to more liability than the debt may be worth.

Zachary Levine, managing partner of Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.

Copyright © 2015, Los Angeles Times
Related Content
Comments
Loading