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In September, a number of homeowners associations began reporting monthly assessment payments to a credit bureau. Such a standard financial management tool is normal for creditors, landlords, and mortgage companies, but is new to common-interest communities. It is a practice that could promote a major positive shift in how boards manage their associations.
The reporting of the information was facilitated by Sperlonga Data and Analytics, a data aggregation company that recently started helping associations report assessment payments to Equifax.
No added liability. Information reported to credit bureaus is subject to the Fair Credit Reporting Act. The law requires that furnishers of information to credit bureaus not report information if they know it is inaccurate or have a good reason to believe it is inaccurate. But if there are mistakes in the information they report, there is no private cause of action under FCRA. There is an exemption in FCRA from furnisher liability to consumers if the information is inaccurate. If there are systemic problems that cause the errors, the regulators can investigate, but as part of its service, Sperlonga assists in avoiding systemic problems. Under FCRA, furnisher liability to consumers can only arise if consumer disputes are not properly investigated.
In addition, the Fair Debt Collection Practices Act doesn't apply to associations, and reporting information to a consumer reporting agency won't make it apply. For example, Chase, Citibank, Capital One, landlords, cell phone companies, and utilities report information to the credit bureaus, but that doesn't make them collection agencies. They are creditors and furnishers to consumer reporting agencies. Similarly, associations won't suddenly be collection agencies if they report information.
It is well-settled law that FDCPA applies only to debt collectors, not entities to whom money is owed. FDCPA applies to "debts," which is defined as "any obligation of a consumer to pay money … which (is) the subject of a transaction (used) primarily for personal, family, or household purposes." Association obligations are personal debts as defined by the law. But FDCPA only applies to "debt collectors," which is defined as "any person … in any business the principal purpose of which is the collection of debts owed or due … another." The assessment is a personal debt, but an association isn't collecting debts due another—the debts are due to it.
There should be no fear that an association is operating in the capacity of a collection agency when that association is reporting account information to a credit bureau any more than Chase or landlords or cellphone companies become a collection agencies when they report.
Acceptance by associations and association attorneys. There has already been widespread acceptance of association credit reporting by many associations. Managers and attorneys say that it is filling a need.
"Reporting assessment payments will transform association management," says Julie Stephens, CMCA, AMS, president of Exclusive Association Management in Atlanta.
Ricky Zilem, business development director at PS Properties in Round Rock, Texas, believes it's the next evolution in community management. "Our goal is to offer the most innovative solutions to our associations. We continue to look for ways to provide unrivaled innovation, unmatched service, and useful solutions to the associations we manage."
At the request of clients, Homeowner Management Services, AAMC, has been looking for a credit reporting solution for some time, says Mike Crew, CMCA, PCAM, president of the Alpharetta, Ga., firm.
Jeff Rembaum, an attorney with Kaye, Bender, Rembaum in Florida, believes Sperlonga's services are a step in the right direction. "This type of credit reporting is long overdue and should be welcomed by community associations throughout Florida and the rest of the U.S.," he says.
Empowering tool. Reporting association assessments to a credit bureau can have a positive impact on a consumer's credit profile. The Consumer Financial Protection Bureau just released a report, Project Catalyst, that looks for innovators seeking to expand access to credit to borrowers who may be excluded or mispriced by existing credit models. CFPB sees opportunities to expand access by incorporating nontraditional data into credit reports. CFPB remains interested in developments that would support expanded access to responsible credit for consumers. Association data is an example of nontraditional data that would enhance such access.
All this activity by the government regulators, national credit bureaus, and credit scoring companies has encouraged the reporting of new types of data so that credit reports present a fuller picture of a person's payment history. Adding homeowner assessments to credit reports helps consumers as well as associations without adding any significant business or legal risk.
Oscar Marquis is the principal of Oscar Marquis & Associates, which specializes in privacy and consumer reporting. He served as general counsel of Trans Union, one of the three national consumer reporting agencies, for over 24 years. He also served on the Federal Reserve Board's Consumer Advisory Council. omarquislaw.com
Equifax, one of the major consumer credit reporting bureaus, announced recently that it will begin including the common area fees and assessments that condominium owners pay in the calculation of consumer credit scores. Sperlonga, a data aggregator that will be collecting this information for Equifax, says the expanded reporting will help consumers improve their credit scores by adding another source of timely payments that will count in their favor.
That may be true. But the condominium associations asked to provide this information and the management companies that collect it on their behalf leave themselves open to incur significant, unwanted, and unnecessary liability risks.
The Fair Credit Reporting Act and the Fair Debt Collection Practices Act impose hefty penalties for inaccurate reports or other violations of the statutes. Managers and attorneys who handle collections for condo associations have argued successfully that the FDCPA, in particular, doesn't apply to them, because they are not collecting a personal debt; they are pursuing a lien enforcement action directly against the property and authorized under applicable state statutes.
These lien enforcement actions generally do not target the owner of the property, hence the exemption from the statute. That exemption arguably would not apply to managers who collect and report adverse credit information about homeowners, because they would be perceived to be collecting a debt from the consumer.
The FDCPA applies to third parties that collect and report credit information for others; it would not apply to associations that report payment information themselves. But associations would, nonetheless, be vulnerable to lawsuits if they submit erroneous information about owners, and they would have to comply with applicable provisions of the FCRA, which makes no allowances for mistakes.
Mistakes are easy to make. For example, property records kept by associations and their managing agents don't always list full names—with initials—and there are an awful lot of John Smiths in the world.
Associations also have to worry about discrimination complaints if they aren't absolutely consistent in the way they report delinquent payments. An association that reports a minority owner who is 30 days behind and fails to report a white owner who is equally or more delinquent can expect to be sued as a result.
The liability risks associations incur by reporting payment information might be justified if they were mitigated by offsetting benefits—for example, if the threat of an adverse credit report would significantly reduce delinquencies or improve collection efforts. But there is no reason to believe that would be the case.
Owners who fall behind in their condo payments don't typically do so willfully—they do so because they have encountered financial difficulties. Threatening to report the delinquency isn't going to cure the owner's financial problems and may actually be counterproductive. For example, refinancing a high-rate mortgage to lower the payments might free up enough cash to cover the condo fees and possibly even avoid a foreclosure. But reporting the delinquency could make it impossible for the owner to refinance.
Even if reporting gave associations some added collection leverage, they don't need it. Most states have some version of a priority lien statute that puts unpaid condo fees ahead of the first mortgage and allows associations to foreclose, if necessary, to collect. That is a powerful collection tool—considerably more powerful than credit reporting.
Condominium associations have to ask who benefits if an association reports owners' payments. It's not the condominium association, which simply incurs unwanted liability risks, along with the considerable expense of registering with the credit bureau. Owners may benefit from whatever small boost the reporting of timely payments will give their credit scores. But simply making timely payments and avoiding negative reports will do far more to protect their credit profiles.
The primary beneficiaries of the reporting are the credit bureaus, which can charge more for the enhanced credit report, and the companies aggregating the information, which can charge for that service. So why should condo associations do anything to facilitate their efforts? They shouldn't.
Patrick Brady and Mark Einhorn are partners in Marcus, Errico, Emmer & Brooks, New England's largest firm specializing in condominium law. meeb.com
Read the opposing viewpoint, "Reporting Assessment Payments Is Good for Owners and Associations," by attorney Oscar Marquis.
Maybe it’s just me, but when I hear the term “vendor,” images come to mind of an apron-wearing gentleman selling hot dogs and soft drinks out of a cart parked on a city sidewalk. I don’t think many people picture the valuable roles served by community association accountants, attorneys, bankers, insurance providers, reserve specialists, technology experts and others. Yet too often, “vendor” is used to describe these professionals. Instead, we all should be striving to call these individuals “business partners.” It better captures the role they serve for community clients.
Business partners have specialized knowledge, experience and industry contacts who can help associations reach their goals. As a business partner myself, my goal isn’t simply to sell associations something. My goal is to help associations and their managers reach their goals. If an association’s goal is to provide a great service to its residents, I can help do that. If the association wants to find a better product or service that will make life easier, and I can’t do that, I probably know someone who can.
Some business partners complain about getting calls from community managers or CAI chapters only when they’re being asked to sponsor something. I understand that, but business partners also need to ask themselves whether they’re being perceived as vendors because they’re acting like vendors. Think about it. Do we call on community managers and community association volunteer leaders only when we want to make a sale? Or do we call them to offer assistance or to see if there is any way in which we can make their lives easier?
Similarly, CAI and its community manager members have been striving to raise the level of professionalism and public awareness of the value of their work. Not long ago, managers asked that we refer to them as “community managers” instead of “property managers” because the term better reflected their area of specialization. The “community manager” term acknowledges these individuals’ years of experience and education. It also captures their specialized skills in working with a diverse group of residents and a varying set of challenges. All of us should remember to use the “community manager” term and give these professionals the respect they’ve earned.
If business partners want to be recognized for the value we bring to this relationship, then we first have to recognize that value ourselves. We have to alter our own perception of our role from “buy and sell” to being “a resource in a meaningful professional relationship.”
Fortunately, CAI has developed the online course Business Partners Essentials, which is a great refresher for “old hands” like me to remind us of the core ideas of why we’re here and an excellent way for those new to the industry to get some important tips on how to operate effectively in this business environment. Go to www.caionline.org/bpcourse for more information.
Business partners have so much to offer community associations, which is why I’m not shy about correcting those who refer to us as vendors. I’m no longer content to be perceived as someone who just wants to sell something. My years of experience mean too much to me to be viewed as a commodity, and I know many CAI business partner members feel the same.
All CAI members should make an effort to strike “vendor” from our vocabulary. When was the last time you saw a business partner pushing a hot dog cart?
Peter B. Miller is a principal of Miller-Dodson Associates, a reserve studies firm in Annapolis, Md., and a member of CAI’s Business Partners Council.
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