January 1, 1900

Michael S. Karpoff

Monthly maintenance fees, common expense assessments, and proprietary rents are the lifeblood of common interest ownership communities. If a unit owner or cooperative tenant fails to pay monthly fees, the association suffers financial harm and the other owners bear the consequences. It therefore is no wonder that governing boards become frustrated with delinquent owners and look for ways to encourage them to pay the amounts owed. A frequent question is whether associations may publish the names of delinquent owners and the amounts they owe in association newsletters. However, such publication creates several risks to the association.

The motive behind publication is twofold ö 1) to inform the community of the financial situation, that is, that income is deficient; and 2) to encourage delinquent owners to make their accounts current. With respect to the first reason, financial disclosure, at least one New Jersey court has held in an unpublished decision, that association members have the right to see account information of delinquent owners. However, because that case was rendered by a trial court and was not published, it does not constitute controlling authority. In addition, although association members clearly have the right to know how many unit owners are delinquent and how much is owed, disclosure of the specific names raises privacy issues.

Publication Requires Consideration of Applicable Law

Furthermore, unsolicited publication and distribution of the information by the association is different from a situation where an owner requests information. Such disclosure raises additional concerns related to the second reason for publication. Clearly, publishing the names of delinquent owners can embarrass and pressure them to pay their debts, which often is the real intent. That effect requires caution by the association.

Although the Fair Debt Collection Practices Act (FDCPA) does not prohibit such publication by the association, it may become an issue if the property manager is involved. The FDCPA does not restrict a creditor’s attempts to collect its own debts and so would not prevent an association from publishing a list of its debtors. However, the Act may apply to property managers’ attempts to collect debts for their clients. If the management company prints or distributes the newsletter, such a list may be deemed harassment or abuse, in violation of the FDCPA, and may subject the management company to action under the Act. (See the related article about the FDCPA in this issue.)

Even though the FDCPA does not restrict the association’s actions, other laws may. For example, it is well- settled that community associations stand in a fiduciary relationship to their members. Such a relationship requires that the association act consistently within the structures of any enabling act and its own governing documents, and that its actions not be unconscionable. The association must act reasonably and in good faith in dealing with unit owners. Any publication that is either intended to or seems to result in the harassment of particular unit owners could call into question whether the association has breached its fiduciary duty.

Bankruptcy Must Be Considered

The association also must be aware of whether the unit owner has filed for bankruptcy. The Federal Bankruptcy Act requires that attempts to collect a debt cease if a debtor has filed a bankruptcy petition. A creditor may proceed against a debtor in bankruptcy only with permission of the bankruptcy court. If a unit owner has filed a petition for bankruptcy, publication of the owner’s name on a delinquency list may be deemed a violation of the automatic stay provision, subjecting the association to penalties for contempt of court. On the other hand, publishing the names of some delinquent owners but not those who have filed for bankruptcy raises fairness issues and may be deemed unlawfully discriminatory.

Moreover, publication of delinquencies creates other risks to associations. For instance, if a unit owner’s name is mistakenly included in the list although he or she paid the amount owed, that unit owner may have a cause of action against the association for defamation. Truth is a defense to a defamation action; negligence is not. On the other hand, even if the information published is true, an identified unit owner also may sue for invasion of privacy for public disclosure of embarrassing private facts. Although it is not clear whether a unit owner has a right to keep a delinquency private, the association’s motive in publishing the information is likely to be scrutinized. If the association is found to have intended to shame or humiliate the owner, that action may be held to be an invasion of privacy.

Are All Delinquencies Equal?

Another potential issue is differentiation among delinquent owners. If a unit owner gets behind in payments because of severe medical bills or loss of a job, does that owner rate exposure, and hence, embarrassment, in the same manner as an owner who has no excuse or holds back payments because of a dispute with the association? Is a unit owner who is paying arrears in installments pursuant to an agreement with the association also subject to publication as being delinquent?

Governing boards may be willing to omit from the list owners who have good cause for getting behind or who are making efforts to pay the debt. However, judging what reasons justify delinquencies or what payment efforts are sufficient may create other difficulties, disputes, and even litigation. In addition, basing publication on the reasons for the delinquency or the owner’s efforts to pay may constitute unlawful discrimination.

Delinquent assessments are a serious problem. Several remedies are available to associations, including private meetings with debtors, written reminders from management or the association, collection letters from attorneys, lawsuits to collect monies owed, and foreclosure. Publication of lists of delinquents may be an inexpensive substitute. However, before deciding to publish lists of delinquent owners, associations must weigh whether the benefit of publication outweighs the risks. Certainly, associations considering disclosure of individual unit owners’ financial information should seek legal counsel to avoid potential liability.

Michael S. Karpoff is a partner in the Community Association Law Practice Group. He is a member of the national College of Community Association Lawyers of the Community Association Institute (CAI).