Landlord’s Beware: Fair Debt Collection Practices Act Applies to Eviction Actions

Posted in Bankruptcy & Creditor's Rights

Recently, the Appellate Division of the State of New Jersey in Hodges v. Feinstein, Raiss, Kelin & Booker, LLC declared that law firms that regularly file summary dispossess action (aka “evictions”) for non-payment of rent are subject to the Fair Debt Collection Practices Act (“FDCPA”). Additionally, the Appellate Division held residential evictions for failure to pay rent must now be made by verified complaint. 

This decision is very important for landlords and their attorneys since failure to comply with the FDCPA’s collection procedures could subject the landlord and the law firm to attorneys fees, costs and damages.

Hodges involved two sisters, Renita Hodges and Rochelle Hodges. The sisters resided in separate apartments in Newark’s Sotnas Garden Apartments operated by the Sasil Corporation. The rent was subsidized by the United States Department of Housing and Urban Development, (“HUD”). The HUD regulations define rental obligations as a percentage of the adjusted monthly household income. However, the landlord’s lease defined additional rent as late charges, reasonable attorneys fees and court costs.

Due to the Hodges sisters regular arrearages, the landlord directed the law firm to file an eviction action. In the complaint, the firm listed non-payment of rent, which encompassed the lease’s defined arrears for all rent, including late charges, attorneys fees and costs. 

The sisters counterclaimed for, among other things, violating the FDCPA. They claimed that the lease requirement did not circumvent the federal HUD definitions of rent. Further, the landlord did not inform the Hodges that they were required to pay “only” the statutory defined rent as provided under HUD to avoid eviction. The trial court granted the landlord’s eviction action and dismissed all counts by the Hodges. The Hodges then filed a motion for leave to appeal. 

The Appellate Division held that the law firm was a debt collector under the FDCPA, citing:

Whether the available remedy in a summary dispossess action is possession, damages, both, or some other result, is of little consequence. The nature of the threat employed to garner payment does not alter the fundamental fact–the reality–that debt collection is attempted, held that in practice eviction proceedings are a powerful debt collection mechanism.

The Appellate Division then referred the matter to the Special Civil Part Practices Committee to draft for the court’s consideration proposed rules to harmonize the FDCPA with the state’s eviction proceedings. In the interim, the Appellate Division has required that all summary dispossess complaint to be verified and expressly state that creditor’s identify and the amount of the rent that must be paid to the landlord or the clerk before 4:30 p.m. on the day of trial.

This opinion is important to both residential and commercial landlords. Before attempting to evict tenants, the landlord should confirm with their attorney the correct amounts owed. As in Hodges, a contractual obligation in a lease for additional rent will not simply override the Federal law that limits the rent.   Although this case is directed to residential landlords, commercial landlords should take heed as well in reviewing their leases and accountings. 

Following are some questions to consider before proceeding with an eviction:

  1. Has a New Jersey Attorney Reviewed the Lease? It is important to have an attorney licensed to practice law in the State of New Jersey review the lease to make sure that it complies with State and Federal law ;
  2. Do any Federal or State statutes preempt? Your attorney should be able to advise if any Federal or State statutes specifically define rent, which would only allow a certain portion to be collected. If so, then you may need to re-inform the tenant of the amount due and owing before commencing suit;
  3. Does the lease provide for collection of attorney fees as additional rent? To collect attorney fees, generally there must be either a contractual arrangement or a statute that provides for such collection. For eviction actions, to include attorneys fees as rent, it must be specifically defined as additional rent;
  4. Who will testify to the amount owed? If the matter is contested, you will need to submit proofs and testimony to show the amounts due and owing. It’s a good idea to have your attorney review the lease and accounting with whomever is to testify. Further, its important that the person testifying have actual knowledge of the books and records, as well as authority to testify; and
  5. Have all notice provisions been complied with? Before your file the eviction action, make sure you’ve complied with all notice provisions. Your attorney should advise of the specific notice provisions that need to be followed under the lease, as well as the Fair Debt Collection Practices Act and New Jersey Anti- Eviction Act, if applicable.