Condos and Credit Agencies

“You cannot escape the responsibility of tomorrow by evading it today.”

- Abraham Lincoln

Every once in a while I get an inquiry from a condominium board of directors about reporting a delinquent owner to a credit reporting agency. I understand the urge. Boards frustratingly spend way too much time collecting money from someone who uses the pool, has their unit insured by the association, gets landscaping and snow removal services, without paying for them. The urge to retaliate can be strong. But it should be resisted. Though legal to do so, I would not advise boards to report delinquent owners to credit agencies. Let me explain.

It's important to note one can't simply write to one of the major credit agencies and report someone. Credit bureaus are private, third-party businesses that provide credit reporting services. Because credit reporting can, obviously, have a significant impact on a business or even the life of an individual consumer, credit bureaus restrict who can provide information that is included in reports. Each credit bureau (the 3 largest/primary ones are Experian, Equifax and TransUnion) have different requirements, such as how long a business has been around, the size of the business, and security standards in it. In other words associations can't just report a bad debt. They either have to become a company, which would make little sense as a condominium association is not a credit data company, or hirea company that does make such reports.

There are problems with providing a company with the bad debt information so it can, in turn, report to the credit reporting companies. First, I can't find anything about price, which is never a good sign, meaning it would likely be very expensive, likely locked into a three year or more contract. More importantly, it appears there may be no price because at least one company requires access to all of an Association's's data to explore and use, which means what was once private no longer is. They, in turn, sell the data to other companies, leading to a lot of complaints from the paying owners.

Further, it's doubtful condominium associations would have the required information as you need, in addition to name, address and such, the birthdate and/or the social security number of the owner. Once you give that information to reporting companies, it opens the door to liability.

Another reason is not so much legal, but operational. Credit reporting is a sort of vengeance against a delinquent consumer. Condo boards of directors are not supposed to be after vengeance. Rather, they are supposed to work with owners to find out why they are delinquent, work with those they can, and proceed to a lien and court judgment with those they can't. Boards are supposed to run an association for the benefit of the owners; it's not supposed to be in the business of creating credit problems for owners.

Then there is the liability. What if the person pays? What if the ledger is wrong or the backup information for theledger is missing and reporting the person for a bad debt is challenged? In such cases, the association would be exposed to liability.

Further still, I don't think any condominium association would or should want the reputation, which would surely spread in this internet day and age, of going after its fellow owners, who have fallen behind, by damaging their credit history.

Then there is the statutory angle. The Condominiun Act notes specific things that can be done to a delinquent owner, such as notifying the mortgagee, filing a memorandum of lien and suing for what is owed. Nowhere does the Act explicitly or implicitly approve reporting a delinquent owner to a credit bureau.

Finally, one entity that does not have to become certified to report bad debts is a court. And courts report judgments to the credit reporting agencies. So, the safest thing to do would be to work with owners, and go to court and get judgments against those who don't pay.