Appellate Court Says HOA Debt Collection Letters Must Satisfy “The Least Sophisticated Debtor” Test
Ninth Circuit U.S. Court of Appeals opinion (January 13, 2017).
This case involved a dispute between a homeowner (“Homeowner”) and the attorneys for her homeowners’ association (“Association”), who were attempting to collect unpaid dues that were allegedly owed to Association. The genesis of the dispute lies in a debt collection letter that Association’s attorney sent to Homeowner which demanded the payment of $385.00 in past due assessments together with late charges, administrative costs, and legal fees. The letter, which was sent on May 1, 2013, contained language that threatened to record a lien on Homeowner’s property if the debt was not paid. Included with the letter were copies of Homeowner’s account statement with Association and Association’s assessment collection policy.
On May 20, 2013, Homeowner sent a letter to Association’s attorney disputing the debt and requesting that it be validated in accordance with provisions contained in the Federal Debt Collection Practices Act (“FDCPA”). On June 5, 2013, the attorney sent Homeowner another copy of her account with Association. On June 18, 2013, the attorney proceeded to record a lien on Homeowner’s property and on June 24, 2013, the attorney sent Homeowner notice of the recording of the lien in compliance with applicable state laws. Homeowner subsequently filed the action against Association’s attorneys claiming that the original May 20, 2013 letter violated requirements imposed on debt collectors by the FDCPA and other similar state laws. Homeowner’s action was dismissed by the trial court after it concluded that the May 20, 2013 letter complied with the requirements of the FDCPA.
Following the dismissal of her case, Homeowner filed an appeal in which she contended that: (i) the May 20, 2013 letter wrongfully demanded payment of assessments and other charges sooner than the expiration of the thirty-day period allowed by law to dispute the alleged debt; and (ii) the content of the letter failed to effectively explain Homeowner’s right to dispute the alleged debt because the attorneys’ threat to record a lien within 35 days of the date of the letter overshadowed Homeowner’s right to dispute the debt.
In reviewing the case, the appellate court stated that under the FDCPA: (i) the notice provided to a debtor of the right to dispute the alleged debt “must not be overshadowed or inconsistent with other messages appearing in the communication;” and (ii) “overshadowing or inconsistency may exist where language in the notice would ‘confuse a least sophisticated debtor’ as to her validation rights.” The appellate court reversed the lower court’s dismissal of the homeowner’s action because the collection letter that was being challenged by Homeowner contained language that overshadowed and conflicted with Homeowner’s “validation rights” under the Federal Debt Collection Practices Act (“FDCPA”) when reviewed under the “least sophisticated debtor” standard. The court went on to state that: (i) when confronted with a notice as set forth in the May 20, 2013 letter, the least sophisticated debtor “would reasonably forgo her right to thirty days in which to dispute the debt and seek verification;” and (ii) the least sophisticated debtor could mistakenly believe that even if she disputed the debt, and had not yet received a verification as required by the FDCPA, the attorney would record a lien on the thirty-fifth day after the initial letter was sent. As such, the May 20, 2013 letter would overshadow Homeowner’s right to dispute the debt by “conveying an inaccurate message that exercise of the right does not have an effect that the statute itself says it has.”
See case decision: Mashiri v. Epsten Grinnel & Howell>