The question often comes up from both boards and from owners in collections: how do delinquent assessment debts get reported to the credit bureaus? Is it a good strategy for our community to improve collections?
The Fair Credit Reporting Act (“FCRA”) governs the reporting of debt to credit bureaus. Under FCRA, anyone reporting information directly to the consumer credit agencies is a “Data Furnisher.” The action that a community association attorney takes on behalf of the association may end up on a credit report; this is especially true when a judgment is obtained in court. However, so long as the association and its attorney do not directly send this information to the credit bureaus, they are not Data Furnishers under the law. Put another way, the credit bureaus may end up with this information anyway, and the association avoids any potential liability that might be created by directly reporting it.
Is the Juice Worth the Squeeze?
The first question for boards to ask is: does this actually help with collections? The answer is: probably not very much. A community association attorney will typically take some or all of the following steps: send a letter, file a lien, file a lawsuit, obtain a judgment, garnish wages, levy bank account, and even possibly foreclose. The threat to a credit score is not nothing, but it is unlikely to be significantly more persuasive than the other available remedies.
Can we Get there Another Way?
Judgments appear on credit reports. So if your community is going through its collection procedure, obtaining a judgment against the owner has the effect of reporting to the credit bureau without designating your community as a Data Furnisher. In recent years, the credit bureaus have tightened the requirements for what judgments they will report, in order to reduce false positives (and also probably their workload). So this is less of a factor than it used to be.
Why Not?
If you have read all this and you are like most boards, you are probably thinking: okay, so maybe it does little good. But why not report it and see if one of our delinquents is in that small number motivated by the credit score? What’s the downside?
The answer is: major downside.
First, any challenge to the data reported by a community requires an investigation and response within 30 days.
Second, an owner could challenge your rights to report this under your documents or state law; the authority to report to credit bureaus is not explicitly stated in most of these locations.
The FCRA also gives delinquent owners an independent cause of action, which can lead to costly litigation for the association.
Given these many concerns, the relatively minimal benefit of reporting to credit bureaus often ends up being unattractive to community boards.
What Should Owners Know?
Delinquent owners often ask how the collections action will impact their credit. The first answer from any attorney for the association is probably: I am not your attorney, and thus not permitted to give you legal advice. Which is correct! Anyone in that situation is well advised to get their own professional legal advice. However, that owner can certainly ask the association representative or attorney if they intend to report to the credit bureaus independently. If the association or attorney says “no,” however, that does not necessarily mean that the information will not ever show up on their credit report.