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Franceschi v. Mautner-Glick Corp.: Property Manager’s Collection of Overdue Rent Is Exempt From Requirements of the Federal Fair Debt Collection Practices Act

In 1998 U.S. District Court case, Franceschi v. Mautner-Glick Corp., involved claims that a property manager and the property owner violated the federal Fair Debt Collection Practices Act (the “FDCPA”) when attempting to collect overdue rent. The purpose of the FDCPA is to protect consumers from unfair and abusive debt collection practices, and it regulates collections made by third parties, such as attorneys, on behalf of another. For the most part, it does not apply to the activities of a creditor who is collecting a debt on its own behalf or to the creditor’s employees.

In this case, Chris Franceschi (the “Tenant”), was a residential tenant in a building owned by King Enterprises (the “Owner”). The Owner contracted with Mautner-Glick Corp. (the “Property Manager”) to handle management of the property, including rent collection. When the Tenant failed to pay rent, the Property Manager sent him a three day notice (pursuant to New York law) demanding payment. The Tenant sued, claiming that the Property Manager was acting as a “debt collector” as defined in the FDCPA, and had violated the law by failing to comply with its requirements. The Tenant also claimed that the Owner also was a “debt collector,” arguing that the exemption for creditors did not apply in this instance because the Owner had used a name other than its own (the name of the Property Manager) to collect a debt.

The basic issue for the U.S. District Court (S.D. New York) was to determine whether the Property Manager and/or the Owner constituted a “debt collector” under the FDCPA. The FDCPA defines a “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails in any business, the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”

The court matter-of-factly stated that the rent was a debt.* It also easily reached the conclusion that the Property Manager’s action fell under an FDCPA exemption to the definition of a debt collector. This provision exempts one’s collection efforts in connection with debts owed to someone else if the collector obtained the right to collect the debt before it is in default. The court reasoned that since the Property Manager had “obtained” the right to collect the Tenant's debt (the rent), before it was overdue, this exemption applied. Since it found that the Property Manager was not a debt collector, its actions were not governed by the FDCPA. The court also observed that the legislative history of the FDCPA shows that Congress did not intend it “to cover companies in the business of regularly servicing outstanding debts, such as rents, for others.”

The court then considered the Tenant's assertion that the Owner was a “debt collector” because it was using the Property Manager’s name in the collection of a debt. It explained that in the second judicial circuit, the use of a third party to collect a debt does not trigger the application of the FDCPA. Rather, the inquiry is whether the “least sophisticated consumer would have the false impression that a third party was collecting the debt.” Here, the Tenant did not claim any confusion as to the relationship between the Owner and the Property Manager. The rental agreement explicitly stated that the Property Manager had responsibility for collecting rent on the Owner’s behalf, and the court observed that the Tenant could not have been under the impression that the Property Manager was an independent debt collector. The court held that the Owner also was not a “debt collector” under the FDCPA, and therefore, had not violated that law.

Note: The thirteen federal judicial circuits are not in agreement on several issues of interpretation of the FDCPA. One of these issues is whether rent constitutes a “debt” under the FDCPA. While this was not raised as an issue in the Franceschi case, in some jurisdictions, rent is not considered a “debt” under the FDCPA. As always, it is very important to consult local legal counsel to determine the law in a particular jurisdiction.

Franceschi v. Mautner-Glick Corp., 22 F. Supp.2d 250 (S.D.N.Y. 1998).