Manager Isn't ‘Debt Collector’ When Pursuing Assessments

Facts: A homebuyer purchased his home, situated in a community association, by a warranty deed that had no reference to the association's declaration. The homeowner failed to pay dues and assessments imposed by the association—one of the obligations in its declaration. Over time, the manager, on behalf of the association, sent multiple letters and invoices to the owner requesting payment of the dues and assessments, without results. Eventually, the association had its attorney send letters to the owner, attempting to collect the amounts owed. But the owner still refused to pay.

The association sued the owner to collect the debt. In response, the owner filed a third-party lawsuit against the attorney and manager. The owner claimed that he had no knowledge of the existence of the association and wasn't subject to its fees and assessments because the declaration creating the association and listing this obligation wasn't part of the documents he signed at the time he bought his home. The owner also claimed that the attorney and manager had violated the Fair Debt Collection Practices Act (FDCPA) in pursuing collection of the assessments.

A trial court ruled in favor of the association, attorney, and manager. The owner appealed.

Decision: An Indiana appeals court upheld the decision of the lower court.

Reasoning: On appeal, the owner argued that because the obligation to pay fees and assessments to the association had been created in a declaration that had been filed after the previous owner purchased the home, that obligation didn't apply to the previous owner or him. The appeals court noted that, because of the timing, the subsequent sale by warranty deed to the new owner mistakenly made no reference to the declaration. The association also conceded that the declaration was filed after the previous owner purchased the home and that the declaration wasn't mentioned in the deed pertaining to the new owner's purchase. However, according to the association, the owner was “estopped”—that is, prevented by legal principles of equity and fairness—from claiming that he didn't know of the existence of the association or its declaration and, therefore, wasn't obligated to pay its dues and assessments.

The appeals court agreed for two reasons. First, it was clear that the owner knew about the existence of the association because he had taken advantage of the services it offered, which he couldn't refuse to pay for now. The appeals court noted that, in this case, the association performed many services for the owner. It hired managers, paid county property taxes and drainage assessments, hired landscapers to maintain common areas, provided liability insurance, maintained common drainage, and enforced the association's restrictive covenants. And the owner accepted these benefits while fully aware of the existence of the association, stressed the appeals court.

Second, the owner also acknowledged the association's role and authority when, on four separate occasions, he responded to the association's requests that he correct problems with his property relative to the restrictive covenants in the declaration. And there was evidence that he attended annual association meetings and in so doing never protested his obligation to pay dues.

While the appeals court acknowledged that there was an irregularity as to the declaration not being mentioned in the warranty deed, it pointed out that the declaration was a matter of public record and applied to the property notwithstanding that irregularity.

The owner had, at a minimum, constructive knowledge of the existence of the association and, therefore, his obligations under its declaration. Moreover, his conduct demonstrated actual knowledge of the association, as reflected in his attendance at association meetings and his submission to its authority to monitor and regulate the use and appearance of his property. He accepted the benefits of the association for four years after purchasing his lot before he registered his refusal to pay dues. As a result, the appeals court determined that he couldn't challenge the legitimacy of the association and the declaration now.

The appeals court also agreed with the lower court that the attorney and manager hadn't violated the FDCPA. It pointed out that Congress passed the FDCPA to eliminate abusive debt collection practices by debt collectors. But liability under the FDCPA is contingent upon a party's classification as a “debt collector,” meaning any person who uses any instrumentality of interstate commerce or the mails in any business that has the “principal purpose” of collecting any debts. This extends to anyone who attempts to collect debts owed to another party—here, the association.

Because of its role, the manager had a “fiduciary” relationship with the association, which it said didn't fall within the primary definition of debt collector. Additionally, there was evidence that the manager provided numerous management services to the association, only one of which was collecting resident fees. The attorney also was acting in his fiduciary capacity in collecting fees on behalf of the association because he served as its legal counsel, said the appeals court. Attorneys who regularly engage in debt collection are governed by the FDCPA, but the principal purpose of the association's attorney's work wasn't collecting fees from members.

Plunkitt v. Beckoning Way Community Association, January 2012