In Harris v. Liberty Community Management, Inc., Case No. 11-14362 (decided December 19, 2012), the United States Court of Appeals for the Eleventh Circuit held that a property management company acting pursuant to a management contract with a homeowners association was not a “debt collector” subject to the Fair Debt Collection Practices Act (“FDCPA”) when it attempted to collect assessments on behalf of a homeowners association.

The defendant property management company worked for a number of homeowners associations in Atlanta.  The homeowners association at issue in the case had contracted with the company to manage the affairs of the homeowners association.  That included contracting with service suppliers on behalf of the association and managing its finances.

To collect overdue assessments owed by homeowners to the association, the management company sent letters to homeowners with past-due assessments of more than $750.00.  Some of the property owners subsequently had their water service suspended because they would not pay the assessments.  Those homeowners filed suit in federal court claiming that the actions of the property management company violated the FDCPA.  However, the Eleventh Circuit concluded that the property management company fit into an exception to the FDCPA’s definition of a “debt collector” because the property management company was acting as a fiduciary on behalf of the homeowners association and its efforts to collect debts was only incidental to its fiduciary obligations.  The Court held that because collecting debts was only a small part of the services provided by the property management company to the homeowners association, the debt collection services were merely “incidental.”

In these stressful financial times, many debtors have used the FDCPA to counterattack against debt collection actions.  Any party that regularly undertakes to collect debts on behalf of another should take a hard look at the FDCPA to see if its activities fit within that Act.