Estoppel Letter From a Homeowners Association

Condominium Associates is here to help you understand what an Estoppel Letter from a homeowner's association is and why they are so crucial for property protection. 

If you are purchasing a property supervised by a homeowner's association, your lender must receive an estoppel letter from the HOA before the closing. An estoppel letter is a legally binding document. Its purpose is to find out whether the seller has any outstanding fees owed to the HOA. Such balances could end up with the HOA putting a lien on the property.

HOA Outstanding Balances

The types of outstanding balances referenced in an estoppel letter vary. However, it does include all the fees that the seller is delinquent in paying. The estoppel letter should also contain the name and contact information of the HOA and the property owner. Also, it should provide payment instructions and information on late fees. 

Estoppel Fees

If payments are due, the HOA and the seller in the collection must pay them for a payoff letter to be issued by the HOA. An HOA board member must sign the estoppel letter. Sellers should expect a fee, generally a few hundred dollars, from the HOA management for preparation of the estoppel letter. It does not matter if the seller is entirely up to date with all payments and the outstanding balance is zero. The estoppel letter is required, as is paying the fee. It's important to note that once the HOA receives an estoppel letter, the amount is binding, and the HOA cannot come back and collect additional fees. Any information not included in the original message is null and void. 

Estoppel Letters Affect Title Insurance

A homeowner must provide the buyer with a warranty deed at the closing. This document proves that the owner has a title to the property and the authority to sell it. Title insurance guarantees this deed. However, title insurance companies will not issue such policies unless they know there are no liens or other impediments on the property. When it comes to title insurance for a property in an HOA, the title company must make sure there are no outstanding balances. 

An estoppel letter is also known as an estoppel certificate. Still, it serves the same purpose as any payoff letter from any lien-holder, ensuring these payments are satisfied before closing. When the lender orders an estoppel letter, the HOA must respond within a certain number of days, with the amount established by state statute. Generally, such estoppel letters must be received within 10 to 15 business once a request goes through.

Protecting the Lender and the Buyer

It's important to understand that an estoppel letter can affect two of the primary parties in a home sale. For the lender, the estoppel letter proves that the property for which they are lending the funds meets their lending regulations. Because the message shows fees charged against the current owner, the lender can determine whether the seller ever made unauthorized modifications to the property that required correction. 

For the buyer, the estoppel letter shows whether there are current fees outstanding. The lender will also let them know that these fees are not transferred to the deed at closing, as they are the seller's responsibility. The estoppel letter must be received before closing can take place.

Need an Estoppel Letter?

Contact Condominium Associates for assistance with this process. We are here to help all parties get the most out of their investments.