Do property managers have to comply with debt collection law?

Q: I am a property manager and work for condominium associations as well as private residential rentals. In both capacities, I have to collect rent and condominium fees, and often I have to send collection letters. I was recently told I have to comply with the Fair Debt Collection Practices Act. Can you explain?

A: The Act (FDCPA) is complex, and I can only provide general information. However, since the penalties for violating the act are high — including having to pay attorneys fees to the other side should you lose in court — I strongly suggest you talk with an attorney versed in collection practices.

Several years ago, the Federal Trade Commission, the government agency that enforces the act, issued a letter opinion on this topic. According to the FTC, if the manager “is an agent of the property owner, the property manager probably is a ‘creditor’ and not a ‘debt collector’ because the debt (the rental payments) would not be to another.”

Note the word “probably.” The FTC went on to say that if the manager was hired before there were debts to collect, the act is not violated. However, a property manager becomes a debt collector “if he regularly collects rental payments that were delinquent when the property owner assigned them to him.

This past September, a Federal Court in Indiana issued a similar opinion holding that a condo property manager did not violate the act if the owner was not delinquent at the time the association hired the company.

There is yet another defense managers can use. The act states that persons collecting debts do not violate FDCPA “to the extent such activity is incidental to a bona fide fiduciary obligation.” What does this mean? If the only function of the manager is to collect delinquent debts, that violates the act. But if the manager performs other functions, such as entering into contracts, preparing budgets, and arranges for accountants, collection is not the only thing the manager does and thus no violation. Collection is a secondary — an incidental — function.

In your situation, since you do more than just collect money, I would say you are not a “debt collector.”

Q: Over the years my mortgage was reassigned many times. I paid my mortgage in full in 2008. I recently looked up my deed online at the county recorder’s office and found the final three releases are ascribed to a PIN that is one digit off from mine. That PIN says it belongs to my property address, but it is unfamiliar to me. A mortgage deed professional advised me it is a minor recording error and to leave it to my future buyer’s title insurance to figure out. He claims my paperwork is in good order, and that efforts on my part at this time would be a waste of time. Your thoughts?

A: Tough question. I agree it is a minor recording error and should not affect you when you go to sell or even refinance in the future. However, as time goes by, it may get harder to find the lenders, since they will most likely be required to prepare new releases.

Under the new Consumer Financial Protection Bureau (CFPB) mortgage rules, settlements (escrows) will now take longer to process. Why add yet another hurdle the settlement or title company will have to deal with?

I suggest you talk to your county recorder of deeds. He/she may be able to correct this without having to go back to the lenders. But if that did not work, you (or your attorney) should contact each of the lenders and have them correct their mistake.

I am hopeful, however, that the recorder of deeds will be able to resolve this unilaterally.

Q: My partner and I own a house as joint tenants with rights of survivorship. Do you know if I can obtain a home equity or personal loan using the property as equity without my partner also signing for the loan? Do financial institutions have home equity loans that allow only one tenant of a joint tenancy to acquire a loan without the second party knowing about the loan?

A: I cannot give you legal advice, but you are heading toward a disaster and possibly a lawsuit from your partner. If he/she is really your partner, you have to work together, and not try to “sneak around” hiding things. If you need money, talk with your partner. He/she may agree to help get you that loan.

When a lender makes a loan — like a HELOC (home equity loan) — they want and need security, and that’s your home. If you default, the lender wants the ability to foreclose. How do they do that? In most states, borrowers sign a deed of trust (the mortgage document) deeding the property to a trustee selected by the lender. If you are in default, the trustee has the power to sell the property.

But if two people own the house, and only one signs the deed of trust, the lender cannot foreclose.

This is a short summary of a deed of trust. To answer your question, no. The lender will need your partner to sign any legal documents if you want to get a HELOC.

You may be able to get a personal loan, based on the equity in your home plus any other assets you can pledge, including your salary.

You should talk with your partner or an attorney — or both.

Q: Should one pay off his/her mortgage early? We are in our early 60s, nearing retirement, and owe approximately $300,000 on our mortgage. The home is worth around $600,000, and we have a modest nest egg. We have enough to pay off the mortgage, but don’t know if it makes economic sense. It does make psychological sense, however, to have a home “free and clear.”

A: This is a personal — not a legal — issue that only you and your spouse can decide. I have represented many clients over the years who were “house rich and cash poor.” Now, of course, if you are 62 years or older, you have the option of getting a reverse mortgage. That, in my opinion, should be considered only as a last resort. The upfront costs are high. And there is always the possibility you will lose so much equity in the house over the years that there may be nothing left to give to your children.

Interest rates are historically low but won’t last forever. The Federal Reserve Board just started increasing interest rates and has indicated that rates may continue to increase as often as every four months. So why put all of the money back into your house? Presumably, your house will appreciate over the years. And it will do so regardless of whether you owe $300,000 or zero on your mortgage.

In my opinion, paying off your mortgage is basically dead money. Invest it somewhere — even if it goes to college funds for your children or grandchildren. To me, that’s a better investment for the future.

There is a compromise, namely start making additional monthly payments. For example, if you make one additional month’s payment every year, a 30-year mortgage generally will drop down to about 22 years. Let’s say your monthly mortgage — not counting escrows for taxes and insurance — is $1,200. If you send in $1,300 each month, your balance will go down much faster. However, if you do make an extra payment, mark on your check and on the mortgage statement that you are making an “extra payment toward principal”. And if you are making direct payments from your bank, make sure the lender has been given the same notice.

This approach will allow you to use your money for other purposes, yet at the same time you will be able to deduct the mortgage interest on your annual tax return. According to David Reiss, a law professor and the Brooklyn Law School, “Don’t beat yourself up for having a mortgage. Embrace the benefits, relax and live a little.”

Source: chicagotribune.com