7th Circuit Rules:
Condo and HOA assessments are debts under federal Fair Debt Collection Practices Act

ASSOCIATION MANAGERS MUST COMPLY OR FACE LIABILITY

by: Jeffrey A. Goldberg

The U.S. Court of Appeals for the Seventh Circuit released a decision on July 2, 1997 declaring that residential condominium and homeowners assessments are consumer debts under the Fair Debt Collection Practices Act (FDPCA).

The Court broke away from other Circuits that have ruled that a debt under the Act must involve the extension of credit. Unless and until the U.S. Supreme Court overrules this decision, all persons in Illinois who are deemed to be debt collectors must comply with the FDCPA when attempting to collect assessments.

The decision resolved two cases, Newman v. Boehm, Pearlstein & Bright, Ltd.  and Riter v. Moss & Bloomberg, Ltd. , both of which alleged that condominium or homeowners' association attorneys had violated the FDCPA when sending out notice and demand letters for assessments.

The FDCPA applies to "debt collectors" which is broadly defined as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." An officer or employee of the creditor is not a debt collector but it is likely that independent third-party management companies would be considered as "debt collectors."

In addition to the notice requirements, the FDCPA also contains numerous rules regarding what information may be communicated and to whom, the hours and methods of contact, and the law prohibits a list of conduct that is considered harassment or abuse.

Management companies have three choices: