Monday, September 15, 2014

FYI: 2nd Cir Holds Collection of Taxes, Water and Sewer Charges Not Subject to FDCPA

The U.S. Court of Appeals for the Second Circuit recently held that liens imposed by a city in connection with property taxes, water and sewer charges are not subject to the federal Fair Debt Collection Practices Act, because they do not involve a "debt" as that term is defined in the statute. 


A copy of the opinion is available at:  Link to Opinion


When two property owners failed to pay property taxes, water and sewer charges, and other municipal charges, the City of New York ("City") imposed liens on the properties, securing the unpaid charges.  The City sold lien certificates to various trusts (the "Trust Defendants") for purposes of collecting on the liens. The Trust Defendants then foreclosed on the liens. 


The property owners sued the Trust Defendants, alleging that the attorneys' fees and costs assessed in connection with the foreclosure actions violated the federal Fair Debt Collection Practices Act, 15 U.S.C. Sec. 1692, et seq. ("FDCPA"). 


The lower court ruled in favor to the Trust Defendants, finding that the liens in question did not constitute "debt" as defined by the FDPCA.  The property owners appealed. 


As you may recall, the FDCPA defines "debt" as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes...."  15 U.S.C. Sec. 1692a5. 


On appeal, the Second Circuit began its analysis by noting that the issue of whether mandatory water and sewer charges constitute a "debt" for FDCPA purposes is an issue of first impression.  However, the Second Circuit considered the issue to be analogous to that posed in a previous case, wherein the Court determined that "municipal taxes levied automatically in connection with ownership of personal property do not involve a 'transaction'...and, accordingly, are not 'debt' for purposes of the FDCPA.  Beggs v. Rossi, 145 F.3d 511, 512 (2d Cir. 1998). 


The Second Circuit found the reasoning of the Beggs case to apply here, due to the similarities it observed between the collection of property taxes and water and sewer charges: both are levied as an incident to property ownership, and the city ordinance concerning foreclosure of water and sewer liens indicates that the process should be conducted in the same manner as a lien for taxes.  N.Y. Pub. Auth. L. Sec. 1045-j(5).


Therefore, the Second Circuit held that "the charges at issue are best treated as akin to the municipal taxes discussed in Beggs and, accordingly, outside the scope of the FDCPA."  





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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