By Jonathan H. Katz, Esq.

As of November 30, 2021, your community associations demand letters may look slightly different. As of that date, new regulations went into effect regarding the Fair Debt Collection Practices Act (the “FDCPA”), 15 U.S.C. § 1692 et seq.

Since 1977, the FDCPA has regulated “debt collectors” who regularly attempt to collect debts owed by consumers to third parties. While association fees/assessments are considered “debts” under the FDCPA, associations and management are not considered debt collectors (at least in New Jersey). However, attorneys engaged to collect these debts are considered debt collectors and, as such, must comply with the FDCPA.

Hill Wallack LLP‘s Community Association Practice Group will be exhibiting at the 2015 New Jersey Cooperator’s Condo, HOA and Co-op Expo on Saturday, May 9, 2015, 10:00 a.m. to 4:30 p.m., at the Meadowlands Exposition Center in Secaucus, New Jersey.

Join board members, property managers, building owners and real estate professionals and meet building service companies, attend educational seminars and get your questions answered by a member of our team at Booth 600.

For more information or to register to attend, click here!

By Jonathan H. Katz, Esq.

In Jerry Maguire, Tom Cruise plays a sports agent who writes a mission statement about perceived dishonesty in the sports management business – “The Things We Think and Do Not Say: The Future of Our Business.” This is my mission statement, Bob Sugar.

Since the mortgage crisis began in the late 2000s, some community associations were (and still are) dealing with the fallout of extraordinary delinquencies, mortgage lenders who either cannot or refuse to pursue foreclosure actions, and, in some cases, units that are so “under water” that owners have literally walked away and abandoned their units. In response to these delinquencies, law firms that represent community associations, including Hill Wallack LLP, have attempted to find creative solutions to collect these past due common expense assessments. One such solution is to request that the Court appoint a rent receiver to take over control of an abandoned unit, rent it out, and use the proceeds to pay down the outstanding arrears due to the Association.

That seems like a workable solution to a problem, right? Why should a unit sit vacant for months or even years waiting for the mortgage lender to complete a foreclosure when the unit can be used to satisfy the outstanding and ongoing common expeense assessments for that unit?

We are going to let you in on a dirty secret: rent receivers in community associations are a work of judicial fiction.

What does that mean, you ask? Put simply, unlike most traditional mortgage instruments, which specifically allow for the appointment of a rent receiver, the vast majority of community associations are granted no such authority and no such right.

So to the extent that your association is currently benefiting from rental payments as the result of a rent receiver application granted by the Court, as many of Hill Wallack’s association clients are, that is due solely to the discretion of a Judge and, most likely, the persuasive argument of community association counsel.

The Appellate Division makes that fact abundantly clear in a recent case denying the appointment of a rent receiver. In Woodlake at King’s Grant Condominium Association, Inc. v. Coudriet, the Association’s request to appoint a rent receiver was denied by the Trial Court. The Association appealed, and the Appellate Division agreed with the Trial Court that the Association failed to demonstrate any entitlement to the appointment of a rent receiver. Moreover, both the Trial Court and the Appellate Division were quick to point out that the Association’s counsel neglected to put the mortgage lender on notice of the rent receiver application, which would have afforded the lender the opportunity to be heard.

The truth is that the appointment of a rent receiver is and has always been a discretionary decision to be made by the Court subject to certain equitable considerations, even in the unlikely event that there is a contractual provision allowing the assignment of rents to the Association. And generally, a receiver will only be appointed when it appears necessary for the protection of the requesting party, such as when there is an inability of the owner to pay the debt and the owner fails to make repairs, resulting in waste of the property.

So what is the moral of this story? The answer is simple. Rent receivers may still be a viable avenue for associations to collect delinquent assessments, but these applications must be prosecuted correctly, on notice to the mortgage lender, and clearly address the equitable considerations of concern to the Court. In addition, since the appointment of a rent receiver is a discretionary, whether the Court will grant an association’s request depends on several factors, most important of which is what Judge is deciding the request, which will be based on the location of your association. However, there is more than one way to skin a cat, and rent receiver applications are not the only way to collect from delinquent unit owners.

The attorneys in Hill Wallack’s Community Association’s group are recognized for providing insight and innovation in the collection of delinquent assessments. Our experience spans more than 30 years, and we aggressively represents associations in assessment collection matters (including bankruptcies and foreclosures). And most importantly, we can assist your association in collecting delinquent assessments the correct way, the right way. If you have questions about assessment collection, rent receivers or what Hill Wallack can do to assist your association, please reach out to one of our Community Associations attorneys.

You can read the Appellate Division’s decision in Woodlake at King’s Grant here.

For breaking news or updates on new blog posts, follow us on Twitter at: @njcondolaw.

In the current economy, the prompt collection of common expense assessments is essential to the functioning of any community association. Accordingly, it is crucial that the board have a policy and use it to consistently collect the fees that it assesses to its members.

For some timely tips to enable you to collect assessments in a timely manner when a member’s account becomes delinquent, click here.

By Ronald L. Perl, Esq.

A Federal Appeals Court has ruled that the Fair Debt Collection Practices Act (“FDCPA”), which imposes civil liability on debt collectors for certain prohibited practices, does not apply to community management companies that provide a variety of services to common interest communities. In Harris v. Liberty Community Management, Inc., the Eleventh Circuit Court of Appeals held that management companies are protected by a provision in the FDCPA that exempts individuals and entities whose collection responsibilities are “incidental to a bona fide fiduciary obligation.” This exemption would not apply to management companies whose central or primary obligation is the collection of assessments.

The homeowners association in the Harris case faced severe financial difficulties due to enormous delinquencies. In 2009, it amended its declaration to suspend water service to any home owing more than $750 in delinquent assessments. The amendment required at least three separate written notices of the intention to suspend service prior to the actual suspension. Shortly after the amendment was passed, the association’s managing agent, Liberty Community Management, Inc. (“Liberty”), sent the appropriate notices to the nineteen homeowners whose delinquent balances exceeded $750. Twelve homeowners made payment plans but seven, including Harris, had their service suspended.

Harris went to Georgia state court in an attempt to force the association to reconnect the water service but failed. She then filed suit in Federal court against Liberty alleging, among other things, that it had violated the FDCPA by sending the notices threatening to shut off the water service.  Liberty moved for summary judgment on the grounds that it was not a “debt collector” covered by that Act. It specifically cited 15 U.S.C. § 1692a(6)(F)(i), which states that the definition of “debt collector” shall not include “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement.”

The court reviewed Liberty’s management contract in detail. It contained the usual scope of work for managing agents, including arranging for the maintenance of the common areas and facilities, negotiating contracts for utilities and insurance, preparing a budget, maintaining the books and records of the association, managing the banking relationship, and the like.  The collection of assessments was a specific duty contained in the contract. The court had no difficulty finding that Liberty owed the association a fiduciary obligation as its agent. Every function it performed, found the court, was as a fiduciary of the association.

The next question was whether the assessment collection responsibility was “incidental” to that fiduciary obligation. The court applied the dictionary definition of “incident”—something casual or of “secondary importance”—and determined that Liberty’s collection duties were incidental considering its broad scope of other responsibilities. The court said: “… Liberty did much more than just collect assessments for the Association and its homeowners; it also contracted for maintenance of the community’s common areas, obtained utilities (including gas, electricity and water), purchased insurance, investigated claims, made reports to insurance companies, kept and maintained ledgers and bank accounts, deposited money and wrote checks, reconciled monthly bank statements, and assisted the Association with its yearly tax filings.” These activities are not significantly different from those generally undertaken by full-service management companies in New Jersey and Pennsylvania. The court made it clear that the result would be different if assessment collection were management’s primary responsibility.

It is important to note that this case comes from the U.S. Eleventh Circuit Court of Appeals. Since New Jersey and Pennsylvania are within the jurisdiction of the Third Circuit Court of Appeals, this case is persuasive, but not binding. The Third Circuit could conceivably make a contrary ruling. However, the case is significant because both the District Court (trial level) and Court of Appeals ruled in favor of the managing agent on this issue.

The Eleventh Cicuit’s decision in Harris v. Liberty Community Management, Inc., decided December 19, 2012, can be found here.

For more information on this or any other issue concerning your community association, please contact one of our Community Associations attorneys. For breaking news or updates on new blog posts, follow us on Twitter at: @njcondolaw.