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Federal Laws Property Managers Must Be Aware Of – Part I

Mary Girsch-Bock — Wed, 01 Feb 2012 00:29:56 +0000

Sometimes it seems as if all property managers spend a majority of their time memorizing various rules and regulations. New employees in particular are always trying to learn basic rules such as “when do we return security deposits, or what account does this deposit go into?” But one of the most important set of rules that property managers must be aware of, and have some working knowledge of are federal laws. While memorization is not needed, property managers MUST be aware of the general regulations that these Acts encompass, and must know when further research is necessary in order to clarify any issues that may come up. I’ve summarized a list of federal laws that property managers should be aware of as well as the possible repercussions if violated.

The Fair Housing Act – While the majority of property managers are well acquainted with the Fair Housing Act, here’s a brief recap. The Fair Housing Act prohibits discrimination in the sale, rental, or financing of housing based on race, color, religion, national origin, sex, familial status, or handicap. Penalties for violating the Fair Housing Act are stiff, and include revocation of any license held, and possible federal prison. Make sure you and your staff treat all applicants equally and this should never become an issue.

The Sherman Antitrust Act – This act is designed to promote competition in the open marketplace. While property managers do need to know competitor’s pricing, managers must avoid the appearance of conspiring to fix prices in order to thwart the competition. Only the courts can determine if price fixing has occurred, and a conviction can result in both civil and criminal penalties including time in a federal penitentiary. That simple verbal agreement between property management companies agreeing to maintain similar rents will send a red flag. Remember, all that is necessary is that it looks like price fixing, and you may find yourself in federal court. Avoid even the appearance of price fixing at all costs.

Americans With Disabilities Act (ADA) – The rules of the ADA are complex and multi-tiered. Briefly, the ADA states that no person may be discriminated against on the basis of disability. The ADA mainly affects commercial property managers, but the Act also covers property management offices, which must be made available to all handicapped individuals. Take some time to familiarize yourself with the basics and be sure to keep your office in compliance.

More in Part II.

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Getting Up To Speed With Fair Housing Laws

Fair Housing Resources for Savvy Property Managers

California 2010 Legal Update: Legislation and Case Law That Will Effect Rental Property Owners and Managers

Think Lodging Credit is Easy? Think Again

KTS-Law — Fri, 02 Dec 2011 21:05:36 +0000

There has been a recent influx in lawsuits by employees in the property management business. After much consultation and defense of employers in this industry, it has become clear that many employers fail to correctly pay taxes on lodging credit. One of the major problems employers have is grasping the understanding that lodging credit is still “compensation” for tax purposes.

Lodging credit is viewed as a benefit for employers, not only for minimum wage obligations, but also for large tax savings. However, like all California employers, the property management industry must comply with all state and federal laws, including all employer tax obligations and requirements.

Determining what constitutes gross income is the key to understanding an employer’s tax obligation. For tax purposes, gross income includes basically anything of value that a taxpayer receives. For employees, this obviously includes their monetary wages, but it also includes anything else they are given as compensation for their employment, including any “qualified lodging” provided by the employer.

In its simplest form, and for tax purposes only, “qualified lodging” includes any lodging provided by the employer that is:
1. Provided on the business premises;
2. For convenience of employer; and
3. A condition of the employee’s employment

Whether an employee’s compensation includes part lodging credit and part monetary compensation, or whether due to the employee’s limited hours and work schedule he or she receives only lodging credit as his or her sole compensation, an employer must always pay California Unemployment Insurance and State Disability Insurance. However, “qualified lodging” is not subject to Social Security and Medicare taxes.

Lodging credit is great for the employer, as long as understood in its entirety. If you are an employer in the property management industry, or some other similarly situated industry, and you currently do not pay these required tax obligations on your employees’ lodging credit, implement this policy immediately, as it has the potential to save you the expense of future tax penalties and the headache of a Franchise Tax Board audit and/or IRS audit.

You should consult with an attorney for any additional information regarding the requirements of using lodging credit as well as other tax related issues.

Written by: Michaelene H. Kapson, Esq. and Karl P. Schlecht, Esq.

Kimball, Tirey & St. John LLP provides employment law advice to its clients and only represents employers. For more information about this article, please contact partner Karl Schlecht at 800-564-6611.

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Judgment Debtor Exams and the “Secret Lien”

KTS-Law — Tue, 23 Aug 2011 23:14:53 +0000

If you were successful in obtaining a judgment against a former tenant or other third party, chances are you will not be paid voluntarily. Sometimes obtaining the judgment may prove much easier than collecting it. This article will discuss judgment debtor examinations and the “secret lien” which are little known tools that can lead to success in the collection effort.

Creditors routinely collect judgments by bank levy, wage garnishment, and payment plan. In the vast majority of cases, though, a creditor does not know where the defendant currently banks or works. A post-judgment debtor examination in court is an excellent way to find out this information and is the post-judgment equivalent of a deposition.

To initiate the process, a creditor wishing to examine a defendant may reserve a court date by submitting a Judicial Council Form entitled Application and Order for Appearance and Examination to the Clerk of the Court. Once filed, the creditor must personally serve the judgment debtor with the order to appear at least ten days prior to the court date.

Most often, the proper court for the examination proceeding is the court in which the judgment was entered. However, if the debtor resides in a different county and more than 150 miles from the courthouse where the judgment was entered, the examination must take place in a courtroom nearer the defendant. To file for an order to appear in a court other than where the judgment was entered, the creditor must file a special application and affidavit with the court along with an additional filing fee. Prior to submitting this application, the creditor must file an abstract of judgment in the court where the examination is sought.

Upon service of the order, the judgment debtor is required by law to attend. In the event that the judgment debtor fails to appear, a bench warrant may be issued by the court for the debtor’s arrest. Typically, the court sets bail in the amount of the outstanding judgment.

When appearing in court for the examination proceeding, the defendant will be sworn by the Clerk of the Court and under oath. The debtor must reveal and identify all assets at the examination hearing. The creditor may properly present questions pertaining to place of business, banking, inheritances, automobiles, personal property, and real estate, for example.

Courts allow very extensive and intrusive lines of inquiry. As one court opined, the purpose of the examination is to “leave no stone unturned in the search for assets which might be used to satisfy the judgment.” Thus, seemingly remote questions are relevant if they could lead to the existence and location of an asset. The widest scope of inquiry concerning the property and business affairs of the debtor is permissible. Interestingly, even the privilege not to testify against a spouse or registered domestic partner is unavailable to the defendant. The creditor may examine the judgment debtor’s spouse concerning any property in which the debtor has a legal or equitable interest.

One aspect of the judgment debtor examination proceeding that is often overlooked is the “secret lien” that is created upon serving the debtor with the order to appear. Once the debtor is served, a one year lien is automatically placed on all of the debtor’s non-exempt property whether or not it is in the debtor’s possession and control. In fact, the creditor need not actually examine the debtor for the lien to be effective because the service of the order to appear creates the lien.

The lien is a statutory creature that is not published or recorded. The debtor may not even know of its existence. This “secret lien” can be especially beneficial in post-judgment priority litigation or, in some circumstances, a bankruptcy proceeding.

As you might expect, most defendants loathe the courtroom experience. Unless you’re a judge, lawyer, bailiff, or court clerk, the courtroom is a foreign land to be avoided. Because the exam is open to the public, it can be an embarrassing and harrowing circumstance for the defendant. Based upon pure psychology, the service of an order to appear in court can be an outstanding negotiating tool. It literally brings your defendant to the table.

In order to maximize the mechanism, a turnover order can be obtained in conjunction with the examination proceeding. Under a turnover order, the judge can require the appearing defendant to deliver any money or property in his or her possession to the creditor or to the sheriff on the spot. For this reason, it is recommended that the attorney for the creditor apply for a writ of execution prior to the examination date. With the issued writ, the sheriff can properly confiscate monies from the defendant at the judge’s request.

The secret lien, negotiating leverage, and the ability to obtain a turnover order make the judgment debtor examination an especially effective collection tool. Is your collection partner using judgment debtor examinations and the “secret lien”?

Written by: D. Patrick O’Laughlin, Esq.

KTS’s Creditors’ Rights and Collection Practice Group utilizes all available collection tools to ensure our clients have the best opportunity in collecting all monies past due. For more information about collections, please contact us at 800-575-1770 and review our website at www.kts-law.com.

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Case Investigation: Maximizing Commercial Collection

Case Investigation: Maximizing Commercial Collection

KTS-Law — Fri, 29 Jul 2011 18:44:57 +0000

Commercial collection may be straightforward when a defaulting debtor owns significant real property, has lucrative relationships with identified third parties, or maintains significant money in readily identifiable bank accounts. Commercial collection may be more challenging if a debtor’s assets aren’t as obvious, either because the defaulting debtor has few or no assets, or its assets aren’t as readily apparent.

California has a statutory scheme that provides mechanisms for judgment creditors to recover money involuntarily from judgment debtors. However, a creditor cannot collect if the judgment debtor’s assets cannot be located.

Identifying a defaulting debtor’s assets can be helpful even if a creditor does not have a judgment. Almost all defaulting debtors claim financial distress. A creditor with good information about a debtor’s assets and financial condition will have a better idea of how hard a debtor can be pushed for payment before the debtor is forced into bankruptcy.

Locating debtors and assets is referred to in the collection industry as “skiptracing.” Skiptracing is particularly important in commercial landlord/tenant debt collection because, after an eviction, the tenant has relocated and must be found. One must have the necessary tools to locate a debtor and its assets. Effective skiptracing requires technology, creativity, and persistence.

Public records can be used to locate debtors and their assets. Property ownership records, bankruptcy records, fictitious business names, and business licensing records can be valuable resources.

Most successful collection firms have business relationships with companies who compile and sell information such as employment, location, credit and other information helpful in locating debtors and assets.

Some collection firms specializing in debt collection have invested in software to help with collection. Software may track information about the debt, the debtor, and past collection activity and schedule reminders for future action. Custom software may interface with sources of public record and business credit information to compile potential leads on debtors and their assets. Specialized software may even “scrub” data and prioritize telephone numbers, addresses, and bank information based upon the veracity of the data. While custom software packages can cost hundreds of thousands of dollars, collection firms who make the investment offer their clients a higher rate of return.

While technology is a key component of effective skiptracing, the ability to locate debtors and assets also requires a collector’s personal attention and good judgment.

Law firms that specialize in collection have additional tools available to locate debtors and assets. Additional investigational tools available to collection lawyers include subpoenas, judgment debtor examinations, and interrogatories to judgment debtors. These tools are available only to law firms; they are not available to other third-party debt collection companies.

Commercial collection success requires good tools, accurate determination of which leads to follow and the best method of pursuit, and effective implementation of the chosen course of action.

Our Creditors’ Rights Practice Group effectively utilizes all available collection tools to ensure our clients the best opportunity to collect all amounts due. For more information about collections, please contact us at 800-575-1770.

Written By: D. Patrick O’Laughlin, Esq.

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Handling Evictions While Rents are Going Higher

Marc Courtenay — Thu, 14 Jul 2011 20:36:22 +0000

Rents in Manhattan, NY were up 7% in the second quarter of 2011 compared to the same quarter the previous year. Rents have also increased between 2 and 5% in the major metropolitan areas of California during that same period of time.

The national unemployment rate increased during June of 2011, and the number of new jobs created was disappointingly low. As unemployment benefits expire and public assistance programs are drained, more residents are finding it difficult to meet their major expenses, beginning with their rent.

On July 9th I interviewed the owner of a property management company in Southern California. She and her partners have been managing residential rental properties for almost 40 years. We discussed vacancies, rental rates and handling evictions. She said that vacancy rates in the summer increase because that’s when most people relocate. However, vacancies are being filled at a much faster rate than last summer, and they’ve been able to raise the rents in most locations. “We’re still having to ‘chase’ rents”, she admitted. “The unemployed are having a harder time finding jobs and resident’s finances are strained”. For the first time in their careers, the property managers are hearing residents who are in arrears say that “President Obama is going to help us”—which indicates to them that more are beginning to believe they need government assistance to keep paying their rent.

Being diligent about enforcing their eviction policies has become an important concern. “We are automatically giving out 3-Day Notices after the 6th of the month, no matter how much they owe.” She explained that a 3-Day Notice was a form of “fair warning” that if the resident doesn’t pay in full within 3 days that the eviction process will begin…no exceptions! They’ve decided to hire a legal service to handle the evictions, which includes the serving of the eviction notices.

When it comes to communicating with the residents, they are always polite and respectful to residents who are delinquent in their rent. She or her associates will often call the residents personally to explain what the 3-day notice means and what the residents must do keep from being evicted. “We don’t let our residents become more than 30 days past due. Residents must pay-in-full and we respectfully tell them there are no exceptions.”

When it comes to dealing with older residents or the disabled, the property managers go out of their way to work with their families, local authorities and social services. There are also private and church-sponsored relief programs available for seniors, the disabled and struggling families. The managers use their support staff to locate all available local assistance programs.

“When residents have fallen behind in their rent I often call them and ask if they are planning to move. I remind them that I’m not going to allow them to be past due more than 30 days without filing an ‘unlawful detainer’. Then I explain to them what that is and how the eviction proceeds.” She had their rental and lease agreements updated to clarify that those evicted would have to pay all legal and court costs. There’s also a clause that states the owner and property manager will not pay more than $600 in resident’s legal/court expenses if the eviction is overturned in court.

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Screening Tenants Consistently for Fair Housing

Mary Girsch-Bock — Tue, 05 Apr 2011 13:00:11 +0000

Under Title VIII of the Civil Rights Act of 1968, commonly known as the Fair Housing Act (click here for Fair Housing resources), it is illegal for landlords to refuse to rent or sell a dwelling based on an applicant’s race, color, national origin, religion, sex, familial status, or disability.

Does your management company base their applicant approvals on documented evidence of an applicant’s ability to pay or not pay, or do other items factor into your decision process?

Fairness and consistency play a large role when screening tenants. It’s important to establish a set of criteria that all staff must follow starting with:

Interpreting the Credit Report
While it’s easy to quickly glance at a credit report and get a sense of an applicant’s risk, many companies look beyond just credit report numbers and consider other factors as well. Just remember that if you are willing to work with an applicant with a low credit score, you must extend that same courtesy to a similar applicant. Whatever your standards are, they must be applied to all applicants.

Income Level
While it’s more work, establishing an income level for each property provides applicants with a well-stated, easily understood rental requirement. For instance, if you rent a 1 bedroom apartment for $700.00 a month, you can establish a minimum income requirement of $2,100.00. If the applicant’s income falls below the required level, they are declined. No exceptions.

Job History
A stable job history is a vital area for property managers to evaluate. It might be helpful to establish a minimum time on the job (i.e. six months) in order to be approved. Again, this may be a tough area to remain consistent on; those new to the area will obviously not have the required time on the job, but their overall job history may indicate stability. Again, if you make an exception for one applicant, be prepared to make an exception for all.

Rental History
Past evictions, consistently late rental payments, and trashed homes in an applicant’s rental history is a cause for concern, and a legitimate basis for denying an application. But remember, these standards must be applied across the board – to all applicants, not just a select group.

Race, disability, cultural background, or familial status should play no role in the decision making process. Knowing Fair Housing Laws, you’ll protect yourself and your company by establishing a consistent screening process and adhering to it. This will ensure that all of your tenants have been qualified in a fair and consistent manner.

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Fair Housing Resources for Savvy Property Managers

Fair Housing Resources for Savvy Property Managers

Marc Courtenay — Fri, 01 Apr 2011 22:45:04 +0000

State and federal laws require nondiscrimination and equal access to housing for all people. There can’t be any discrimination on the basis of race, color, religion, sex, national origin, ancestry, sexual orientation, age, familial status, children, marital status, veteran status or membership in the armed services, the receiving of public assistance, or physical or mental disability.

Ignorance of Fair Housing laws can lead to some serious legal consequences. And as the saying goes, “ignorance of the law is no excuse at all”. Many who violate the Fair Housing laws haven’t really taken the time to familiarize themselves with federal regulations or their own state’s laws.

Virtually all state governments have a Housing Department of some kind which will include a web site detailing the Fair Housing laws that are enforced where you do business as a property manager. In the state I live in I was able to find a “housing discrimination hotline” by going to the “Government” section of our local telephone book. There I easily discovered all the state housing department’s listings and phone numbers.

One property manager I interviewed recently said that she called the city and county agency that deals with housing and rental property regulations. Without identifying herself as a property manager, she simply told the receptionist that she wanted to familiarize herself with the rules and regulations regarding Fair Housing. After being put on hold a few minutes she was able to talk with a knowledgeable official who guided her to the various web sites that answered all her questions.

Many states provide training and even technical assistance on the legal obligations and rights of public and assisted housing providers under federal and state fair housing laws. This training is often free and includes the following topics: Reasonable Accommodation, Screening and Tenant Selection, Fair Housing

In many major cities these trainings are offered throughout the year and are open to anyone. If you can’t find a conveniently located one there are online sites such as Fair Housing Helper which offer this information at a reasonable cost.

Another good resource for Fair Housing information is the user-friendly U.S. Department of Housing and Urban Development (HUD) website. Their “portal” web site page will lead you to many explanations and details.

Rumor has it that there may be increases in Fair Housing law enforcement in the weeks and months ahead. You won’t be caught off guard if you know these laws and are familiar with any annual changes.

One last suggestion; if you don’t have the time or inclination to keep updated, assign someone in your office to do the research and to summarize the essential information for you. An “ounce of prevention” is often the best antidote to most legal snafus.

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A Landlord’s Inside Track to Debt Collection: The Bank Levy

KTS-Law — Mon, 14 Mar 2011 12:00:21 +0000

Written by D. Patrick O’Laughlin, Esq.

Our property manager / owner clients have a distinct advantage over other judgment creditors, because they typically know the bank and account number where their former tenant banks. Generally, this information is on the tenant’s application. If, however, the tenant has changed bank accounts, prudent property managers will take copies of rent checks to compare with the application to determine if their tenant has changed accounts. It is not uncommon for someone struggling financially to change bank accounts.

In order to levy a bank account, the judgment creditor must first request a writ of execution from the court. For landlord-tenant cases, this is the court where the eviction took place. Once the writ of execution has been issued by the court, the creditor must utilize the sheriff (or registered process server) to personally serve a copy of the writ and a notice of levy on the bank. In order to be effective, the levy must be served upon the branch where the account is held or at a centralized location within California that has been designated by the financial institution.

At the time of levy, or shortly thereafter, the sheriff must also serve the judgment debtor with a copy of the writ, notice of levy, and list of exemptions that may be available to the judgment debtor in California.

The bank is obligated to honor the levy provided that it can effectively identify the account holder. This seems like a simple notion. However, imagine that the levy was served at a major institution on the account of “John Smith.” The bank could conceivably have reasonable difficulty identifying the proper account to levy and, therefore, the levy would be ineffective. In light of this potential obstacle, a judgment creditor should include personal identification information on the levy instructions so that the bank cannot avoid the levy. Of course, it is appropriate to provide the bank account number on the levy instructions if available to the creditor. Creditors may also include the social security number of the defendant on the levy instructions and request that the bank levy all accounts held in the name of the judgment debtor including but not limited to those identified on the levy instructions. This “broad sweep” maximizes debt collection potential.

Once the levy is served, the bank must seize all monies in the defendant’s bank accounts. The levy reaches all monies in the accounts at the instant of levy. After the levy, the bank may not honor checks or other orders for payment drawn against the defendant’s accounts because, in essence, the accounts are frozen.

In the event that the bank account is held jointly with another party, the sheriff will instruct the bank to hold the levied monies for 15 days to allow the third party to make a claim on the levied funds. If a third party claims an interest in the levied funds, a court hearing will be necessary to determine whether the third party has a superior interest to that of the judgment creditor. In these instances, an “undertaking” may be required. An undertaking can be an expensive proposition for a judgment creditor since the court can require the posting of bond.

After the levy, the judgment debtor may assert that the levied funds are exempt from execution. If this occurs, a court hearing will be set to determine whether or not the levied funds are, in fact, exempt. It is incumbent upon the judgment debtor to trace the levied funds to an exempt source. Common examples of exempt funds are social security benefits, unemployment compensation, and disability payments. If the judge determines that the levied monies are exempt, the court will order the return of the levied monies to the judgment debtor.

California statutes also allow for the levy of safe deposit boxes. After service of the writ of execution by the sheriff, the financial institution may not permit the defendant to remove the contents of the safe deposit box. A bank officer or manager places a “boot” upon the lock so that the defendant cannot gain access.

Typically, additional fees must be submitted by the judgment creditor to drill the box and the judgment creditor must retain the services of a locksmith. The bank manager, sheriff, locksmith, and the creditor then meet at the bank at an agreed upon time and the locksmith will open the box. The defendant is entitled to be present at the time of drilling. After drilling, the box is presented to the judgment creditor for inspection. Typically, the bank manager will arrange for the availability of an office in which the creditor can carefully inspect the contents of the safe deposit box. If the creditor wishes, the contents may be delivered to the sheriff for sale. The proceeds of the sale are applied to the judgment. In order to sell the contents, the judgment creditor must obtain a “turnover order” from the court prior to drilling.

Over the years, our firm has discovered some very interesting items in the safe deposit boxes of defendants. Quite often, documentation is held in the box that can lead to the discovery of other assets. For example, on behalf of our clients, we have discovered deeds, stock certificates, wills, and automobile registrations.

Recently, our firm was retained to collect a relatively large judgment following a commercial eviction. For nearly a year, the defendant remained uncooperative and evasive. The defendant had taken great pains to hide assets. When we located and seized a safe deposit box, the defendant surprisingly (and quickly) came to the bargaining table. Prior to the scheduled drilling, the defendant offered to settle the case for $75,000. Our client accepted. While there was no longer a need to pursue the drilling, our client remained somewhat curious as to the contents of the box but was delighted with the outcome of the case.

Property managers have an inside track on other creditors since, by the nature of the landlord-tenant relationship, they often know where their former tenants banks, allowing for a successful collection process. Does your collection partner conduct bank levies? If not, they are leaving money on the table.

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Getting Up To Speed With Fair Housing Laws

Mary Girsch-Bock — Mon, 21 Feb 2011 20:09:50 +0000

Are you up to date on the Fair Housing Laws? Both federal and state anti-discrimination laws need to be adhered to on a regular basis in order to prevent potential lawsuits from crippling your property management company. Fair Housing laws clearly state that you cannot take specific actions against rental applicants based on race, color, national origin, religion, sex, familial status, or handicap. These actions include refusing to rent a property, setting different rental terms for specific applicants, or providing different housing services for some renters.

While outright discrimination is easily avoided, there are some gray areas that may get your property management company into trouble, and possibly even a lawsuit. Here are some ways you can reduce that risk:

Be Consistent
Establish a set policy and abide by it at all times and make sure that your employees adhere to the policy as well. For example, when screening applicants, be sure to run a credit check on all applicants, not just a few select individuals. Keep all applicant credit reports in order to support your decision to rent/not rent to someone.

Check References
Be sure to check any relevant references and verify current employment status. This information can be key in determining whether you should rent to someone. It will also prove in a lawsuit that the same procedures have been followed for all applicants.

Empower Employees
Provide your employees with the information and tools they need to make the proper rental decisions. Although questionable applicants should run by senior personnel, all employees that represent your management company in any capacity should have full knowledge of all Fair Housing rules and regulations.

Document
Document the reason(s) why you turn down an applicant. Bad credit history, criminal history, lack of funds, a history of slow rent payments are all sufficient reasons for denying a rental application. Just make sure that you have the necessary documentation to back up that decision.

Equal Treatment
Quality of service must be the same across the board. You cannot pick and choose who you respond to based on any other criteria than urgency of the problem.

Get Educated
Check out the Fair Housing website for additional information. Make sure that all staff that interacts with rental applicants has access to the site.

Basing your rental decisions on good business practices and documenting it accordingly can keep your property management company free from claims of discrimination and a possible lawsuit.

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Choose Your Collection Partner Wisely

KTS-Law — Mon, 07 Feb 2011 19:05:40 +0000

The battle on the collection field has always been fought with the sword and the shield. It is a game of offense and defense. When choosing a law firm or collection agency to represent you, it is important to find one that maximizes recovery with the “sword” while at the same time protects you with its “shield” from unwanted liability for alleged debt collection violations.

For these reasons, many landlords are now choosing law firms over collection agencies because they are much more likely to have developed a sophisticated risk management model that will minimize risk in an area of law that is fraught with litigation. In addition, a law firm generally provides avenues for collection not available to collection agencies, such as routine bank levies and wage garnishments, liens on real and personal property, and the seizure of automobiles. In the eyes of a debtor, a law firm is more intimidating than a collection agency such that a law firm naturally produces better results for clients.

The Sword
In order to maximize recovery dollars in this economy, it is crucial to utilize formal judicial enforcement techniques. Following an eviction and after a money judgment is obtained, your former tenant can also be served with an order to appear in court for a judgment debtor examination hearing if no assets are readily available for collection. At this hearing, the defendant is required to answer questions, under penalty of perjury, concerning his or her financial status and ability to pay. Through this examination, we typically find bank accounts, places of employment, and attachable personal property. In the event that the defendant does not appear in court for an examination hearing, a bench warrant may issue for the debtor’s arrest. If your current collection company does not use judicial enforcement techniques, you are leaving money on the table.

Your former tenant is also responsible for the court costs and sheriff’s fees incurred by the plaintiff in pursuing these collection activities and, in California, your judgment accrues interest at 10% per year until paid in full. The judgment is enforceable for ten years and can be renewed prior to expiration provided that you have attempted diligently to recover your money. Be certain that your collection agency or law firm assertively pursues the interest and costs of collection to which you are entitled.

The Shield
From a risk management perspective, federal and California law are decisively slanted in favor of debtors. The restrictions placed upon collection agencies and collection law firms are extensive. It is a highly technical area of law. Recent federal legislation and case law have created a legal environment that has become even more burdensome to collection companies.

Two primary bodies of law govern collection and credit reporting issues at the federal level: The Fair Debt Collection Practices Act (FDCPA) and The Fair Credit Reporting Act (FCRA). Penalties for violation of these Acts are severe. In addition to actual damages, a plaintiff may be awarded statutory damages in the amount of $1,000 for each violation, punitive damages, court costs, and attorneys’ fees. Each state also has its own credit and collection laws (usually mirroring the FDCPA and FCRA to some degree) which can provide additional remedies for recovery. Moreover, if a collection attorney or collection agency is found to have engaged in an unfair business practice, a creditor can be ordered to disgorge profits. Awards based upon unfair business practices can be substantial.

It is important to note that, as a landlord and creditor, you may be held liable for the acts of your collection company. The nature of claims against collection agents, and ultimately against creditors, generally fall into three categories: statutory violations, claims for negligence, and intentional torts. The FDCPA contains many common sense provisions (no deception, no abuse, and no harassment). However, the FDCPA contains some counterintuitive provisions that are particularly easy to violate if you are not an expert in the field. Violations of these technical provisions are penalized to the tune of $1,000 per violation. For example, if your collection agent continues to send form letters to a debtor who has properly asserted his or her statutory right that communication be discontinued, you can be held liable for $1,000 per letter.

Almost every year, Congress makes some changes to the FDCPA or FCRA, or a court takes on a peculiar interpretation of the legislation that causes a landslide of litigation. For this reason, it is unusual for attorneys to “dabble” in collections. Collection law is a very specialized area of law that requires a firm regularly engaged in that area.

Many claims arise from more than oversight, imprecision, or failure to stay abreast of legislative changes and recent rulings. Slander, libel, conversion, fraud, and infliction of emotional distress fall within this category. These claims often arise as a result of harassing actions by the agency or firm (repeated calls after permissible hours of contact, for instance), blatant violations of FDCPA guidelines (revealing the existence of a debt to a third parties), and deceit (threatening to take action that cannot legally be taken.)

As to the likelihood of claims, there may not be an industry that lends itself more to the incidence of risk. The number of boutique firms specializing in consumer and debtor representation has risen throughout the country. These boutique firms want to sue you. Attorneys General in many states have taken more active roles in pursuing and punishing rogue collectors. The directive from Congress, state legislatures, and the courts has never been stronger: impermissible collection activities will not be tolerated.

For these reasons, it is essential that you choose your collection partner wisely.

Our Creditors’ Rights Practice Group specializes in debt collection. We have recovered over $100 milion dollars for our clients. If you would like us to begin a collection matter for you, simply call 800.575.1770 or go to www.kts-law.com and click on “start a case.”

Written by D. Patrick O’Laughlin, Partner

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