SEVENTH CIRCUIT PERMITS FDCPA LAWSUIT FOR CONDOMINIUM ASSESSMENTS
By Timothy M. McCarthy
July 1997
The federal courts, in construing Fair Debt Collection practices Act cases, had uniformly held that “debt” requires an offer or extension of credit, and therefore some type of deferred payment obligation, for the Act to apply. Thus, the courts have refused to apply the Act to efforts to collect homeowners’ or condominium assessments, since there is no extension of credit by the homeowners’ or condominium association. In Newman v. Boehm, Pearlstein & Bright, Ltd., No. 96-2839 (7th Cir. July 2, 1997), however the Seventh Circuit held that collection agencies trying to collect past due homeowners’ or condominium assessments must abide by the Act.
The initial plaintiffs here, Mr. and Mrs. Newman, were in default on their condominium association assessment. The consolidated plaintiffs, Mr. and Mrs. Riter, were in default on their homeowners’ association assessments. Both couples sued the law firms that were trying to collect the assessments, claiming various violations of the Act. The trial court dismissed both complaints, reasoning that the assessments did not qualify as a “debt” since there was no extension of credit. (The trial court did not reach the issue of the actual violations of the Act.)
In the meantime, however, the Seventh Circuit held, in a different case involving a dishonored check, that the Act does not require an offer or extension of credit for a payment obligation to be considered a “debt” under the Act. All that is required is a transaction creating an obligation to ay.
In Newman, the Seventh Circuit reasoned that the plaintiffs’ obligations to pay their homeowners’ and condominium association assessments arose from the purchase of the underlying property units. They became obligated to pay the assessments, even if the timing and amount of the assessments was yet to be determined. Since the Act does not require a credit obligation, the fact that the homeowners’ or condominium association required payment before the goods or services were provided by the association is unimportant. Accordingly, the assessments constituted “debts” under the Act.
Furthermore, since the relevant transactions at issue were for purchase of a family dwelling, the assessments met the statutory requirement that the subjects of the transactions be personal, family, or household purposes. Specifically, the Seventh Circuit reasoned that the use of assessments for purposes such as repair of a common roof, snow removal of common walkways, or landscaping of common areas are for a household purpose, although more than one household benefits.
Therefore, the assessments at issue constitute debts under the Act and the law firms hired to collect those debts were required to comply with the Act.
This opinion continues the Seventh Circuit’s expansive interpretation of the Fair Debt Collection Practices Act. Just about any commercial transaction for personal, family, or household purposes can be considered a “debt” under the reasoning of this case. The Seventh circuit continues to find more activities to be within the purview of the statute. Accordingly, more professionals will be required to comply with the statutory provisions of the Act.