Is your association using, or considering using, a debt collection company as opposed to a licensed Florida attorney to assist in recovering delinquent assessments? Over the past several months, several prospective (now current) firm clients asked us for help in resolving situations that arose when the debt collection company retained by the association did not deliver as promised. Common themes have emerged from these experiences, which led us to develop several questions that any board must ask before signing a contract with a debt collection company.
1. Is the debt collection company a law firm? Can they represent our association in court?
No. Debt collection companies are not law firms, they cannot file assessment lien foreclosure actions in court or, for that matter, file any action in court. After that, the debt collection company must engage one of their “network” attorneys to foreclose the lien or pursue other legal action against the homeowner.
2. Who selects, controls, and pays for an attorney to represent the association?
The debt collection company, not the association. In every debt collection company contract we reviewed, the association has no say in selecting the attorney who will represent it. Instead, the debt collection company will select the attorney from its list of “network” attorneys, all of whom compete for business from the debt collection company, which naturally raises the question from the association’s view of where the attorney’s loyalties lie. This concern is particularly applicable where the interests of the debt collection company and association are not aligned. tip: If your association is considering using a debt collection company, insist that the board (not the debt collection company) maintain control over both the selection of and instructions given to the attorney who will represent the association.
3. If the debt collection is selecting, controlling, and paying for its “network” attorney to represent my association, where do the attorney’s loyalties lie?
Every Florida licensed attorney is bound by the Florida Bar’s rules of professional Conduct, one of which mandates that “Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.” Comment to Rule 4-1.7. In a typical association/attorney relationship, where the board selects and controls the association’s attorney, this question never presents itself because there is no “middleman” between the board and the attorney. However, where the debt collection company is selecting, controlling and paying the attorney and is otherwise acting as the “middleman” between the association and the attorney, clients have raised concerns about how the “network” attorney can ethically represent the association while also answering to and taking instructions from the debt collection company. It is because of this ethical quagmire that we do not represent debt collection companies, do not seek business from debt collection companies, and certainly are not “network” attorneys for any debt collection companies.
4. Why does your debt collection company charge more than a Florida licensed attorney for the same task?
Several clients who were previously engaged with debt collection companies were shocked to learn that the debt collection company, which is neither a law firm licensed and regulated by neither the Florida Bar nor a management company, charges much more than a licensed Florida attorney for the same task! For example, we recently reviewed one debt collection company contract for a prospective association client that was looking for guidance on how to escape from the grips of the debt collection company. For example, this particular debt collection company charged the unit owner $500 for what is typically called an “Initial Demand Letter,” which letter must be sent to the owner before a lien may be recorded in the public records. Conversely, most law firms charge anywhere from $150 to $250 for the same service, except the service is provided by a licensed Florida attorney. How is it possible that non- lawyers charge hundreds of dollars more than licensed Florida attorneys for the same service?
5. Are there really no out-of-pocket costs to the association?
Although most debt collection companies claim that the association will not incur any out-of-pocket costs, our review of several debt collection company contracts reveals that this statement is not entirely true, particularly where an association desires to terminate its relationship with the debt collection company. The tricky part is that terminating the collection company as to a certain account and moving it to an attorney firm may trigger payment of the collection fees by the association. Again, this is why it is so important for the association to carefully review any proposed debt collection contacts with independent legal counsel before the agreement is signed, otherwise an association may be the bottom line is that the board has an obligation to act in the best interests of the association and employing a collection company that will charge unreasonable fees, which may become the responsibility of the association, does not appear to be in the best interest of the community as a whole.
6. Is the debt collection company really looking out for my association?
The goal of any debt collection company is simple: to collect as much money as possible and to in turn generate a profit for the debt collection company’s owners. Similarly, boards of directors should be aware that the debt collection company may not be representing the association’s interests on other matters, such as mortgage foreclosures and bankruptcies. For example, if a mortgage foreclosure action is almost complete, it may not be necessary for the collection company to take the next step in its collection process. However, the collection company is not bound by the same ethical standards that bind every licensed Florida attorney. It would presumably want to charge its fee, so it may proceed without caring about how much is ultimately due by the homeowner. Similarly, if a homeowner files bankruptcy, and an automatic stay is put in place, the association would be precluded from taking action to collect or enforce the debt. However, in our experience, boards are not informed by their collection company on bankruptcy issues, most likely because the companies are not attorneys and cannot provide legal advice. Unfortunately; however, not being informed could result in sanctions imposed by the bankruptcy court. That is why we recommend that counsel for the association remain involved in these matters even if the delinquent account is turned over to a collection company.