Collections & Delinquencies

Four layers, one mistake

Every rule in this course sits on one of four layers, and mixing them up is the single most common mistake a board makes.

Federal law sets a floor nobody can shrink, regardless of what your state or your declaration says. The Fair Debt Collection Practices Act binds a third party collecting a consumer debt owed to someone else:

"who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another"

Source: 15 U.S.C. § 1692a(6), Cornell Legal Information Institute

An association collecting its own account under its own name is generally outside that definition. The moment the file goes to a collection attorney, though, that changes: the Supreme Court has held that a lawyer who regularly collects consumer debts through litigation counts as a debt collector too. Filing bankruptcy trips a separate federal switch: the automatic stay halts collection the instant a case is filed, no court order required, and active military service can pause a foreclosure under the Servicemembers Civil Relief Act regardless of what state law or the declaration allows.

State statute runs the mechanics underneath that floor. It decides how an assessment lien attaches to a unit, how much of that lien can outrank a first mortgage (a UCIOA-model state illustrates this with a six-month window), whether a foreclosure needs a judge's signature, and what late fees and interest a board may charge. Each of those figures is set state by state. Check your own state's condominium or HOA act.

Industry standards shape lender behavior without being law themselves. Fannie Mae's own loan-purchase standards track that same limited-priority idea, favoring a defined, recent window of assessment debt over a first mortgage because it gives lenders a fixed, measurable risk. That is an investor's underwriting policy, not a statute, and it does not bind a state that sets a different number.

Governing documents fill in what statute leaves open: a late-fee amount under a state cap, whether a payment plan is offered at all, how many reminders precede a demand letter. These are typically board and declaration choices operating inside the boundary the layers above set, not requirements those layers impose.

A number, deadline, or procedure that isn't tied to one of these four layers is teaching you the layer doesn't exist. It does.

What boards get wrong

Three beliefs show up often enough in board meetings to name directly.

"We can't be sued for collection abuse, the FDCPA doesn't cover us." True only while the association itself is collecting under its own name. It stops being true the moment an attorney or agency takes over the file, and some states, California among them, extend debt-collection conduct rules to the original creditor as well. "We're not covered" is a half-true sentence boards routinely over-apply.

"Bankruptcy wipes out what the owner owes us." It does not. Assessments that become due after the filing, for as long as the owner still holds an interest in the unit, are not touched by a Chapter 7 discharge. Only the arrears from before the filing are dischargeable, and a Chapter 13 case treats even that differently. Bankruptcy stops collection immediately; it does not erase the obligation to keep paying.

"Our lien beats the mortgage for everything owed." Lien priority over a first mortgage is capped, commonly illustrated by a six-month window under UCIOA-style statutes, and Fannie Mae's own lending standards are built around that same limited window. A board that assumes it collects in full ahead of the lender is planning around money it may never see first.

A fourth belongs here: an owner's death does not end collection, it relocates it. The lien and the debt survive against the estate, but the association now works inside probate procedure and its own, often short, deadlines rather than ordinary collection timelines.

When to stop, no matter what your policy says

A collection policy is a set of choices the board controls. A short list of triggers is not: they are federal law, and they override the policy the moment they apply.

Bankruptcy is the sharpest one. The automatic stay reaches:

"any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case"

Source: 11 U.S.C. § 362(a), Cornell Legal Information Institute

the instant the case is filed, no court order needed. A board that keeps sending letters, records a lien, or continues a foreclosure after learning of the filing is violating a federal statute, not merely being persistent. The right move is to stop and get legal advice on asking the bankruptcy court for relief from the stay.

Military service is the second trigger. Under the Servicemembers Civil Relief Act, a foreclosure or sale for breach of an obligation, filed during, or within a year after, a servicemember's period of service, is not valid unless a court approved it beforehand. This is separate from, and does not require, a hardship the board grants voluntarily.

A written dispute is the third trigger, and the narrowest. Once a third-party debt collector sends a validation notice and the owner disputes the debt in writing within the 30-day window, the collector must pause collecting the disputed amount until it has answered the dispute. This binds the collector working the file, even though it does not bind the association's own internal recordkeeping.

None of these three require the board to agree, negotiate, or respond quickly. They require it to stop.