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Pre-Lien Demands and FDCPA Concerns

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Recovering delinquent assessment debt is one of the more complicated issues that homeowners associations (“HOAs”) face. Fortunately, the Civil Code grants HOAs with significant remedies to recover delinquent assessment debt, including the ability to record assessment liens and to ultimately enforce those liens through foreclosure. However, HOA Boards, managing agents and collection professionals understand that the laws governing such remedies are complex, and a string of California court decisions in recent years have affirmed the necessity for HOAs to strictly comply with these legal requirements. The recent case of Mashiri v. Epsten Grinnell & Howell (2017) 845 F.3d 984 is an example.

Civil Code Section 5660 requires associations to provide delinquent homeowners with notice of the HOA’s intent to record an assessment lien (i.e., to send a “pre-lien letter”) at least thirty (30) days prior to recording the assessment lien.  As such, most pre-lien letters demand that payment be made within this thirty (30) day period (e.g., “Demand is hereby made that you remit payment within thirty days of the date of this notice or else a lien will be recorded”).  However, according to the Court’s decision in Mashiri, such a demand for payment within this timeframe may violate the Fair Debt Collection Practices Act (“FDCPA”).

In Mashiri an owner became delinquent in the payment of assessments to the HOA. As a result, the HOA, through its legal counsel sent the homeowner a pre-lien letter.  The letter stated in part:

This letter is to advise you that $598.00 is currently owing on your Association assessment account.  Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property….

Unless you notify this office within 30 days of receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume the debt is valid.  If you notify this office in writing within thirty (30) days of receiving this notice that the debt, or any portion thereof, is disputed, we will obtain verification of the debt….

The Court concluded that this language violated the FDCPA in two (2) respects. First, the FDCPA requires the written notice (here, the pre-lien letter) to provide the debtor with thirty (30) days to dispute the debt. While the pre-lien letter demanded payment within thirty-five days of the date of the letter, such language is inconsistent with the requirement that it be upon receipt of the letter. The Court pointed out that, “[b]y the time a debtor receives such a letter, there may be fewer than thirty days before payment is due.”  (Id. at p. 991.) As such, the “least sophisticated debtor, when confronted with such a notice, would reasonably forego her right to thirty days in which to dispute the debt and seek verification.” (Id. at p. 991-92.)

Second, the FDCPA requires a debt collector to cease all collection efforts “until the debt collector obtains verification of the debt . . . and a copy of such verification . . . is mailed to the consumer by the debt collector.”  (Id. at p. 992; quoting 15 U.S.C. § 1692g(b).) The pre-lien letter at issue in Mashiri simply stated that a lien would be recorded if the debtor failed to pay.  Thus, the “least sophisticated debtor would likely (and incorrectly) believe that even if she disputed the debt,” and the debt collector had not mailed the verification of debt to the debtor, the debt collector would nevertheless record a lien against the property. (Id.)  “In this manner, the letter effectively overshadows the disclosed right to dispute by conveying an inaccurate message that exercise of the right does not have an effect that the statute itself says it has.” (Id.; quoting Pollard v. Law Office of Mandy L. Spaulding (1st Cir. 2014) 766 F.3d 98, 105.)

California HOA lawyers HOAs should be cognizant of the requirements under both the Civil Code and the FDCPA, and should ensure that the pre-lien letters being prepared by the HOA’s managing agent and/or legal counsel is compliant with the Court’s holding in Mashiri. The language should include a statement concerning the owner’s right to dispute the debt, as well as provide a sufficient amount of time from receipt of the letter to dispute the debt in order to prevent a lien from being recorded. The holding in Mashiri emphasizes the necessity for HOAs to retain the services of qualified collection firms that are aware of these statutory requirements and understand how the collection process must be managed so as to avoid potential problems. HOAs in need of collection services may contact our firm’s affiliate, Alterra Assessment Recovery.

-Blog post authored by TLG Attorney, Matthew Plaxton, Esq.

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