In the recent case of Haddad v. Alexander, Zelmanski, Danner & Fioritto, the Sixth Circuit held that assessments imposed by a condominium association on individual unit owners qualified as “debts” under the Fair Debt Collection Practices Act (FDCPA).  Under the FDCPA, a debt is “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes” (15 U.S.C. §1692(a)(5)).  By characterizing an individual’s obligations in this way, a debtor is granted additional protections under the FDCPA, including protection against false or misleading collection practices and verification by the creditor of the amount owed by the debtor.

The court’s analysis in Haddad centered on the nature of the obligation and the point in time in which characterization of the obligation should be made.  The court adopted the Seventh Circuit’s approach, which requires that the character of an obligation should be determined at the point when the obligation to repay arises rather than when efforts to collect a debt are initiated.  In the case of Haddad, the court determined that the obligation to pay condominium assessments arose at the time of his purchase of the condominium, at which time he became bound by the terms of the condominium declaration and was required to pay for any assessments imposed on his property.

The law firm argued that because Haddad was leasing his condominium at the time collection efforts began, that he was using his condominium for business purposes rather than primarily as a residence and thus fell outside the protection of the FDCPA.   However, since the court determined the relevant time to consider when a debt is incurred is at the time when the debt obligation is first imposed, at the time that Haddad purchased his condominium, he was personally utilizing the space as his primary residence and continued to do so for 15 years. 

In order for a payment obligation to qualify as a debt, the FDCPA requires a transaction out of which such debt arises.  In this case, the court determined that the purchasing of the condominium was the necessary transaction, and at that time, Haddad was making personal use of the premises, and the condominium assessments qualified as “obligations of a consumer to pay money arising out of a transaction.” (15 U.S.C. §1629(a)(5)).

While the Sixth Circuit’s holding in Haddad is helpful in providing guidance as to the Sixth Circuit’s approach to the issue of condo assessments under the FDCPA, it is not strictly probative of the manner in which lower Kentucky courts may handle the matter.  Since the Commonwealth of Kentucky has not adopted a separate debt collection act, it remains subject to the requirements of the FDCPA and its definition of debt.  Therefore, the only determination subject to the discretion of Kentucky courts is the point in time in which a debt is characterized.  Under KRS 381.9125, a condominium regime is created at the time that a declaration is recorded and within that declaration, there must be an allocation of common expenses among unit owners. (KRS 381.9137).  At the time that an individual purchases a condominium, they become subject to the requirements of the condominium declaration that is of record, which includes any and all obligations to pay for the use and maintenance of the common elements.  Thus, it is at this time that an individual’s obligation to repay arises and a debt is incurred.  So, it logically follows that Kentucky courts, if ever presented with the issue, would follow the lead of the Sixth Circuit, determine that the relevant point at which the obligation to pay condominium assessments arose was at the time of purchase, and that if the purchase was for use as a primary residence, such amounts qualify as debts under the FDCPA.