HOA Fair Debt Collection Practices
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LICENSING & FAIR DEBT COLLECTION PRACTICES

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from making false or misleading representations and from engaging in abusive and unfair practices in the collection of consumer debt. Violations of the Act can result in fines and damages against the association plus attorneys' fees.

FDCPA Applies to Assessments. Associations that hire third parties to collect delinquent assessments, such as lawyers, collection companies, and management companies, are governed by the FDCPA. In Thies v. Law Offices of William A. Wyman (SD Cal 1997) 969 F.Supp. 604, the court held that homeowner association assessments fall under the Fair Debt Collection Practices Act. The FDCPA requires that certain disclosures be made to homeowners. In addition, debt collectors are prohibited from making harassing telephone calls, making idle threats, directly contacting owners represented by counsel, etc.

Debt Collection Licensing Act. Effective January 1, 2021, Senate Bill 908 requires most entities that collect consumer debts must be licensed and regulated by the State of California. Debt Collectors are defined in the law at Section 100000(j) as "...any person who, in the ordinary course of business, regularly, on the person's own behalf or on behalf of others, engages in debt collection."  A "person" includes corporations and LLCs. Debt collectors will have to apply for a license, undergo a criminal history record check and even be fingerprinted. In addition, annual reports will have to be filed with the state by the debt collector and a surety bond of at least $25,000 will have to be maintained.

HOAs and Management Companies. Since HOA assessments are considered "consumer debt," assessment collections companies are required to be licensed as debt collectors. It also means that attorneys and management companies that routinely engage in collection of delinquent assessments will also have to be licensed under the Act. It is unclear if associations that handle their own collections have to be licensed as debt collectors.

Boards of Directors. Even though they have more flexibility, boards should avoid personally getting involved in collection activities.

Recommendation: It is not unusual for management companies to get involved in written communications regarding assessment collections including late letters, pre-lien letters and even assessment liens. Beyond that, boards should be cautious about using their management companies to collect debts. Neither boards nor management companies should not get involved in verbal attempts to collect delinquent assessments. The safer route is to use use reputable companies that specialize in homeowner association collections.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

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