You likely need an estoppel letter when buying or selling a condominium unit or house that's subject to a homeowners association, commonly known as an HOA. A buyer and mortgage lender want to know whether a seller owes outstanding balances to the HOA so the costs can be paid at closing. A seller wants to know the exact amount he will owe at closing when selling or paying off a mortgage. Estoppel letters are binding statements that prevent the HOA from later retracting facts or stating contrary information.
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HOAs can increase fees, impose special assessments, and hold homeowners accountable for unpaid dues. A buyer considering a home within an HOA is entitled to such information, as it may affect the home's desirability or affordability. Buyers, sellers and mortgage lenders alike can request estoppel letters or estoppel certificates from the HOA before closing. HOAs may charge a fee for issuing the letter. The amount of the fee depends on state laws that govern HOAs and individual associations. Who pays the estoppel letter fee depends on buyer and seller negotiations.
Exposing Unauthorized Actions
HOA estoppel letters also reveal when homeowners have violated an association's rules, known as Covenants, Conditions, and Restrictions -- CC&Rs -- and bylaws. HOA restrictions often limit construction and alterations to condo units or single-family lots. Violations and penalties for unauthorized improvements to a property appear on the estoppel letter. The buyer and the buyer's mortgage lender can then look further into the issue, can find out whether it has been resolved and whether fines have been paid, and can ensure that the home meets HOA guidelines before closing.
Estoppel Letter Requirements
No boilerplate template for estoppel letters exists. The information provided on a letter varies by state and HOA, with some associations requiring more detailed information in letter than others. In Florida, for example, a letter must at minimum contain an HOA officer or authorized agent signature, the assessment amounts, and any money owed to the HOA. Language in California estoppel letters varies extensively, according to Davis-Stirling.com, a legal resource website for California HOAs. Estoppel letters may include an exact fee limit for letters, such as $250, or simply state that the fee should not exceed the association's "reasonable cost."
Estoppel Letters Vs. HOA Certificates
A buyer's mortgage lender may require its own version of the estoppel letter, which may entail more information than the association's letter offers. To protect their own financial interests, lenders may request an HOA certificate, which includes details such as the amount of HOA reserves, homeowner delinquency rates, the percent of nonowner-occupied units in the development, and any pending or unsatisfied judgments against the HOA. This information helps the lender determine whether the HOA is fiscally sound.