The economic crisis has impaired the ability of homeowner associations to pay for maintenance, insurance and to properly fund repairs and capital improvements. It is said that Necessity is the mother of invention and in other articles and presentations, we have identified smart, prudent ways of minimizing the effect the crisis has had on association operations, including, most recently, the efficient use of small claims court to pursue delinquency claims against owners whose homes have no equity. One idea we do not endorse is the publication the names of association members in a newsletter or other written media distributed by an association or its managing agent. Here are some reasons why publication is unwise.
Assessment collection is highly regulated under Davis-Stirling and the Fair Debt Collection Practices Act. Many of the laws are intended to protect the debtor. None of these laws specifically authorize the publication of the names of delinquent owners; in one situation publication is specifically prohibited and in others it is implied.
The decision to foreclose on a delinquent owner's property must be made by the board in executive session (Civ Code §5705(c)). The board is required to maintain the confidentiality of the owner by referencing the property by parcel rather than the name of the owner. The decision to record a lien must be done in open session but the statute does not require that the owner's names be identified. However, before the lien is recorded, the association must meet with an owner in executive session to discuss payment plans if they are timely requested and available. Further, at various points in the foreclosure process, the owner has the right to request mediation or arbitration, proceedings which are generally confidential and must be confidential if requested by the owner in the context of a disciplinary hearing. All this confidentiality implies that an owner's financial status is sensitive and private.
The FDCPA is a federal law that regulates the collection of debts which can include assessments. The law does not generally apply to restrict how creditors (like an association) collect their own debts but does impose restrictions on third party collections. In a particular case, this may or may not include an association's lawyer or manager. It is very likely that the publication of a list of delinquent owners would be contrary to the privacy protections contained in the FDCPA.
Defamation is basically oral (Slander) or written (Libel) statements that are intended to injure someone's reputation. We've all heard the phrase truth is a defense to defamation claims but this is inaccurate when it comes to the publication of private facts. The first California case to acknowledge a right of privacy, decided in 1931, upheld a claim based on the publication of private facts. The California constitution now gives our citizens a right to privacy. The main question is whether the facts are private and not of legitimate public concern and if publication to a specific group for a specific purpose would be privileged under §47(c). In one homeowner association case, the court recognized the members have an expectation of privacy when it comes to the casting of ballots (Chantiles v. Lake Forest II Master Homeowners Association (1995) 37 Cal.App.4th 914); it is easy to imagine a court would extend this rationale to financial relations between an owner and their association and that breach of the privacy expectation would support claims against the association and others who participated in the publication.
Directors should act in good faith in ways intended to benefit the community. A board must weigh the pros and cons and risks and benefits of a particular action before authorizing it. Is it really likely that those owning homes whose debt exceeds value are likely to be shamed into paying association assessments by putting their names in the newsletter? Will publishing the names of owners who have vacated their homes motivate them to pay a debt? If they have left no forwarding address and thus are not likely to receive the newsletter, what possibly motivating criteria could justify publication? Is there a risk of wrongly publishing the names of owners who are current or who have cured the delinquency? Does publication for a family already desperate create a risk of litigation (which might not be covered under a D&O policy)? Is the community benefited by knowing who is delinquent versus the amount of the collective receivables and steps the board is taking to address cash flow problems? Does publication breed support for positive approaches to the economic crisis?
The answer to these questions is no. There are a lot of reasons why an association should not publish the names of delinquent owners. Doing so is probably contrary to statutes and the state constitutional right to privacy, doing so subjects the association, directors and managers to risks of claims; can create anger and division in the community; and isn't really likely to work. As we've written before and addressed at our recent seminar, there are many positive things an association can do to overcome the current economic crisis; things that can reduce receivables and expenses and garner respect for the board and the association. As to publication of debtor's names, as Nancy Reagan famously said in another context: Just say no.
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