This Attorney Attempted To Collect Fees For A Homeowners Association By Filing 131 Lawsuits. Here's What Happened Next
What happens if a debt collector gets a little too efficient in trying to collect a debt? The HOA attorney in this case found that out the hard way.
Wildcat Run is a residential neighborhood on the southeast side of Indianapolis, Indiana. It has a homeowners association (HOA), and the people who live are required to pay dues to that HOA every year.
When one hundred thirty-one homeowners did not pay their dues on time, the HOA hired a real estate attorney to collect those "debts."
Small claims lawsuits filed
The attorney's first step was a strange one. Before trying to collect from or communicate with any of these one hundred thirty-one homeowners, the attorney filed one hundred thirty-one small claims lawsuits. 😲
On each Notice of Claim form filed for these lawsuits, the attorney listed a phone number at his law office that was designated for this specific HOA debt collection case. Once filed, the respective notice of claim form was mailed to each defendant-homeowner. (Imagine that being the first indication that your HOA had decided to escalate the matter of your late dues payment: you received a mailed form that told you that you were being sued!)
Because the attorney had not previously tried to collect from or communicate with any of these homeowners in any way whatsoever, the mailed notice of claim form prompted many recipients to call the phone number listed on the form.
As court testimony would later show, this had apparently been the attorney's plan all along.
"Efficient" vs. "legal" debt collection
When the total debt recovery being sought is low, debt collectors need to find ways to protect their time. For example, suppose that the average debt per defendant in this case was $350 and that the attorney's deal with the HOA was that his collection fee would be equal to 10% of whatever amount he collects (in addition to any attorneys' fees and costs he could convince the court to tax to the defendants). Since the total pool of potential recovery would only be around $45K of principle, the attorney's best-case scenario would be a contingency fee equal to something close to $4,500--and that would only be if everyone paid up.
The average hourly rate for a collections attorney in Indiana is around $250, and the average hourly rate for a real estate attorney is around $260. So, let's assume that this attorney needed to be earning a minimum of around $255 per hour in this HOA collections case for it to stay in line with his average fees. That would set his total number of "available" hours in this case at just under 18. When you have 131 separate lawsuits, each with its own defendant, an 18-hour cap could very quickly be obliterated.
Knowing this, and wishing to stay as efficient as possible, the attorney decided to engineer his debt collection process as follows: