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Landlords who do not sign their own pay or quit
notices in New York, Connecticut and Vermont MUST COMPLY WITH THE
FEDERAL DEBT COLLECTION ACT. Even if you do not have any rental
properties in these three states, KEEP READING! How this affects you and
what you can do to avoid legal snares is described below
The United States Court of Appeals, Second Circuit,
decided Romea v. Heilberger & Associates in December, holding
that the Federal Fair Debt Collection Practices Act applied to an
attorney who served a three day notice to pay rent or vacate in his own
name on behalf of his client, the landlord. Even though the result seems
unintended by Congress, the reasoning of the court seems sound,
reinforcing the law of unintended results. This decision has been
greeted with paroxysms of dismay and much scrambling about, but without
much consideration of the practical impact upon landlords confronted
with the tenant in rent default. Considering the tiny fraction of people
this will affect, and the ease with which compliance in the typical rent
case can be effected, it is not a disaster. Nevertheless, a few minutes
should be devoted to assuring compliance, since the consequences of
non-compliance can be annoying or worse.
We will deal with, first, who is affected by the
decision, second, the types of debt to which the FDCPA applies, third,
the types of persons to which the act applies, fourth, how to comply
generally with the act, and, fifth, deal with a couple of specific
examples.
A decision of the Second Circuit Court of Appeal is
binding only upon courts in that circuit. These are located in New York,
Connecticut and Vermont. The decision will be considered persuasive, but
not binding, when the issue comes up in the other Circuits, and
particularly so in that the Second Circuit has a tradition of issuing
well reasoned seminal decisions in the commercial arena. In addition to
the persuasive effect of the decision, it will spawn similar suits in
other Circuits, based upon the Romea model. Therefore, landlords
outside of the Second Circuit who wish to avoid potential litigation and
liability should consider compliance as a conservative measure, until
remedial legislation can be introduced and passed.
The FDCPA is a Federal statute designed to
control practices in the professional consumer debt collection industry.
It outlaws some practices and mandates some for those who make a living
collecting the debts of other people. It was never intended to apply to
persons who collect their own debts. Nevertheless, given the virtually
limitless number of debtor/creditor relationships, and the infinite
permutations thereof, this as with all statutory prescriptions is full
of gray areas.
The law applies to all consumer debts. From the
landlord’s point of view, this means that it applies to rent and any
other monetary charges which may arise out of a residential rental
agreement. All persons who owe such a debt, either directly, as the
tenants themselves, or indirectly, such as co-signers, are protected.
Rents and other charges arising out of commercial rental agreements are
excluded.
The proscriptions and prescriptions of the law apply
to "debt collectors." These are defined as
"any person ... in any business the 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."
Further exemptions specifically mentioned in the
statute are:
Officers or employees of a company acting in the name of the company
A person acting on behalf of a co-owner, or someone related by
corporate control (i.e., a shareholder of a small corporation acting
on behalf of the corporation or all the shareholders)
Government employees
Process servers
non-profit consumer credit counselors, and the like
A person acting in a fiduciary capacity (such as the trustee) or in
connection with a bona fide escrow, provided it concerns a debt which
originated in the cestui and was not in default at the time it was
obtained by the trustee, etc.
Let us consider the various individuals who are
involved in the rent collection process and see if they are covered. The
landlord acting on his own behalf is clearly not subject to the law, for
he is signing all his own documents and notices, and making all the
collection contacts. A property management firm which collects all rent
and actually manages the property is not covered, as their primary focus
is not the collection of delinquent obligations, but to act as the agent
of the owner, or in his place as to all matters. FTC informal opinions
thus far have reinforced this opinion. Employed resident managers are
not covered, as they come under the first exemption mentioned. Process
servers are specifically exempt. Scriveners services would not be
covered as they do nothing but type up the documents for the landlord
acting on his own and have no contact with the tenant. More
sophisticated services, which call themselves eviction services, and
actually initiate contact with the tenant, would be covered, and should
comply with the law. Similarly, eviction service/attorney teams, which
provide services much like collection agencies, are covered. Individual
attorneys acting on the landlord’s behalf, must comply, however, if
the landlord has acted on his own up to the point of initiating eviction
proceedings in court, and all the attorney does is initiate and
prosecute the court proceeding, the attorney would not be covered.
So, we see that those in the eviction process who are
covered by the act include the eviction service, the property manager
whose primary function is to collect delinquent rent and not manage the
property generally (these often operate eviction services), and
attorneys who are injected into the process before the actual filing of
legal proceedings, for example, those who prepare and serve rent
collection notices in their names on behalf of the landlord. These
individuals, inasmuch as they charge money to do these things, are
responsible for ensuring compliance. Since the landlord has potential
liability for their omissions, however, it might be just as well to read
on so that this exposure can be identified, if it exists, and
controlled.
If you are a landlord in a situation which triggers
FDCPA coverage then within five days of your agent’s first contact, a
notice under the act must be provided to the tenant. The first contact
in this situation is typically the pay rent or quit notice from the
evictor or attorney. This notice must advise the tenant that he has
certain rights which must be exercised within thirty days. The eviction
notice, however, typically grants a much shorter time within which to
pay rent. The FTC has taken the position that the demand notice need not
be thirty days long, but must not obscure the debtor’s right to
perform certain acts within the thirty days. In other words, if you tell
the tenant that he has 30 days to dispute the debt under the FDCPA, but
demand payment within 3 days to avoid eviction proceedings, you might be
held to "obscure" the tenant’s rights under the FDCPA by the
three day payment demand. To avoid this problem, we suggest the language
set out below. This can be incorporated in the body of the pay or quit
notice, or included in an attachment to the notice.
"The amount of the rent you owe is set out in the attached
notice. The rent is owed to [name of landlord]. Unless you dispute the
validity of this debt within thirty days of the date of this notice,
we will deem this debt valid. If you notify us in writing at the
address on the notice attached that the debt, or any portion thereof,
is disputed, we will obtain verification of the debt or a copy of a
judgment against you and a copy of such verification or judgment will
be mailed to you by us. Upon your written request within thirty days
of the date of this notice, we will provide the name and address of
the original creditor, if different from the current creditor. This
notice is an attempt to collect a debt and any information obtained
from you will be used for that purpose. CAUTION: Your thirty
day rights set forth in this attachment do not extend your right to
pay or vacate set forth in the attached notice, AND, the attached
notice to pay or vacate does not shorten or otherwise affect your
thirty day rights set out in this attachment."
If the tenant, within thirty days of the date of
service of the notice with attachment, disputes the debt, or demands the
name and address of the original creditor, then all action must cease,
until the information is sent by return mail.
Assuming that you have not elected to obviate all
this by simply having the eviction notice served in your own name, let
us examine a couple of scenarios to show just how simple compliance is.
Scenario 1: Notice and attachment is served on
April 6, written dispute notice received from tenant on April 8 at 1:15
p.m. stating April rent was paid. All collection actions must cease. At
1:20 p.m. envelope addressed to tenant is stuffed with a previously
prepared copy of the ledger card and note stating there is no record of
receipt of April rent. Collection actions resume.
Scenario 2: Notice and attachment is served as
above. On April 8 at 1:15 p.m. written dispute notice received stating
the faucet leaks. All collection actions must cease. At 1:20 p.m.
envelope addressed to tenant is stuffed with a previously prepared copy
of the ledger card and a note stating there is no record of a complaint
of a leaky faucet and that is not a breach of the warranty of
habitability in any event. Collection actions resume.
You get the idea. Your professional will have
prepared for these contingencies, and all you need is to supply the
information you should have supplied at the start anyway. No huge
delays, no big deal.
The FDCPA does not invalidate your eviction notice
even if the act applies. There is liability for damages and penalties,
however. The decision must be made whether to comply or not. Since the
application of this act to rent issues seems unintended, it is likely
that the large trade associations will work to obtain remedial
legislation. Until then, the conservative landlord should insist that
his evictor or attorney give thought to compliance with this act. Better
than the class action lawsuit won is the class action lawsuit avoided.
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