QUESTION: Is it lawful to report delinquent owners to credit monitoring agencies? The threat of their credit being harmed might give some impetus to them to pay what is owed.
ANSWER: Credit bureaus (Equifax, TransUnion, etc) will not work directly with homeowner associations. They will only work with companies with large numbers of consumer, or with public records. Delinquencies are reported to credit bureaus when there is a public record, such as a foreclosure of a homeowner association assessment lien or a court judgment. Those are already being reported.
Reporting Service. Delinquencies in the payments of homeowner association assessments are not being tracked or reported by credit bureaus. However, at least one company has an agreement with Equifax to furnish payment histories of homeowners associations who use their services. Reporting delinquent owners to credit bureaus creates risk for associations. If the association or its managing agent makes a mistake on an owner's account, it will be reporting inaccurate information to a credit bureau. If that harms an owner's credit, both the management company and the association could be sued.
Indemnity Provision. If there is an indemnity provision in the management company's contract, which is fairly standard in the industry, the association will be defending both itself and the management company in a lawsuit. That means that any errors in the accounting (which is not uncommon) could be costly for an association. A number of court cases have already made it clear that any missteps in the collection process have negative ramifications for associations.
Security Breach. There is another potential problem with using a reporting service, it may sell the information to other end-users, not just credit bureaus. Concentrating such information in large offsite databases make tempting targets for hackers. On September 8, 2017, Equifax reported a massive security breach that compromised the personal information of 143 million Americans. Putting delinquent members' personal information at such risk may not be worth the small perceived benefit to the association. There are other collection methods that pose much less risk to the association and its members.
Recommendation: Avoid using credit reporting services. Even if the service claims it will indemnify an association, any misstep in the collection process that includes reporting a delinquent owner to a credit bureau will likely result in litigation involving the association, its board of directors, and management.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.