June 29, 2015 by Shani Zakay, Esq.
"No cost" collection service can come with a serious cost.
Gena Hanson was a member of the Vineyard Terrace Homeowners Association.
In 2013, she was hospitalized for three months while undergoing chemotherapy
and fell behind on her assessment payments. The Association hired Pro
Solutions to collect Hanson's outstanding debt. Pro Solutions, a debt
collection company, agreed to represent the association on a "no
cost" collection basis. Under this model, Pro Solution charged the
delinquent owner directly for the collection costs and fees, while the
Association assumed no liability for the costs whatsoever. Various "collection
fees" and "management costs" were added to Hanson's
ledger, but the Association was not responsible for paying those costs
to Pro Solution.
Hanson made several payments to Pro Solutions, but Pro Solutions applied
her payments to the costs it was charging, rather than to the assessments.
Hanson decided to sue. The crux of her complaint alleged that Pro Solutions
charged her for fees the association never incurred, in violation of Civil
Code Sections 5650(b)(1) and 5600(b). She claimed that this conduct violated
the Fair Debt Collection Act, seeking monetary penalties and attorneys' fees.
The United States Federal District Court agreed with Hanson and criticized
Pro Solution's practice. It stated:
"It is clear that the fees of Pro Solutions are not allowable claims
of the HOA under [§ 5650(b)] because they were not costs incurred
by the HOA in collecting the delinquent assessment. They are also not
allowable under [§ 5600(b)] because they exceed the amount necessary
to defray the HOA's costs; they are not costs of the HOA at all. To
find otherwise opens the door to all sorts of mischief, as an HOA has
no incentive whatsoever to question costs for which it is not liable and
no incentive to search for services charging more reasonable costs."
It therefore allowed Hanson to proceed to trial with its claims against
So what does that mean for your association's future collection efforts?
It means you have to be careful. Based on this decision, associations
should stay away from collection companies that offer a "no cost"
collection service-this type of service is usually going to be prohibited.
While only Pro Solutions was named as a Defendant in Hanson's complaint,
a homeowner could easily name the Association as a Defendant to a similar
claim, because a collection agency merely acts as the agent of the association.
The savings in using a "no cost" collection service can prove
worthless when facing the costs of litigation. Silldorf Law, LLP can ensure
that you are not engaged in a collection activity that is putting your
association at risk of liability. Our firm offers the benefits of a "no
cost" collection without the risks presented by the Hanson case.
Our firm provides a "fee advancement" model where the association
incurs the costs, but is not responsible for paying them until we successfully
recover the debt from the delinquent owner. With the "fee advancement"
model, the association's cash-flow is not affected, and the board
does not have to worry about the monthly legal fees and collection costs
being incurred. When the debt is collected, the Association pays Silldorf
Law, LLP the fees and costs it had incurred, but can do so from the surplus
Hanson v. JQD, LLC, No. 13-05377 RS, 2014 WL 644469, at *1 (N.D. Cal. Feb. 19, 2014)