THE FEDERAL DEBT COLLECTION ACT AND THE LANDLORD

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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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