Ct. Rules Homeowner “Waiver” of Order of Application of Funds Paid per Payment Plan is Void

U.S. District Court, Northern District of California, decision (December 23, 2016)

In this case, a homeowner that was delinquent in the payment of homeowners’ dues, contested the actions of the association’s attorney / collection agent relative to enforcing the outstanding debts. Initially, when the matter was turned over for collection by the association, the homeowner owed $1,239.08 for delinquent dues, plus an additional $587.50 for costs and fees charged by the collection agent. A six month payment plan was agreed to, but during the period before the plan was completed the total debt had grown to $2,479.44. As a condition of accepting the payment plan, the collection agent required the homeowner to waive a California code section (Civil Code §5655(a)) that requires homeowners associations to apply payments to the delinquent assessments first until fully paid, and then to the amounts owed for collection fees and costs. Notwithstanding said section, the collection agent combined the homeowner’s delinquent assessments and the collection fees/costs in a single statement of account and applied the payments without giving priority to the unpaid assessments.

After entering into the payment plan, there were issues about the homeowner defaulting in the plan payments and additional charges that were imposed by the collection agent. The homeowner filed suit against the collection agent alleging that its actions violated the Federal Debt Collection Practices Act (“FDCPA”) and the California Unfair Competition Law (“UCL”). The homeowner’s main contention was that fees and costs claimed by the collection agent were barred by California Law (provisions contained in the Davis-Stirling Act) and by pursuing the collection of those items, the collection agent was violating the FDCPA and UCL.

Concerning the amount of collection fees and costs that were charged to the homeowner, the court ruled that vendors, such as the collection agent, can legally charge fees and costs for their collection services that HOAs cannot. The state laws that prohibit a homeowners association from marking up charges that it incurs in the collection process in order to generate a profit, do not restrict the vendor providing services to the HOA from collecting those amounts—so long as the HOA does not receive a windfall from the amounts collected and the charges are not unreasonable. Thus, the collectible costs incurred by the association include the fees and profits actually charged to the association for the vendor’s services.

With regard to how the amounts received from the homeowner must be applied, the court ruled that, under the applicable state laws, the association does not have discretion to deviate from the allocation of the funds that are received from the homeowner. Consequently, the provision contained in the payment plan entered into with the homeowner that required the homeowner to waive the protections of the code section that required application of the funds received to delinquent assessments first until fully paid was “void” as a matter of public policy.

See case decision: Doskocz_v._Ass’n_Lien_Servs.