If you’re selling a home in a North Carolina community that is run by an HOA, an estoppel certificate is an important document that can help the sale go smoothly.
But what exactly is Estoppel? Estoppel is a legal concept meaning that someone certifies the accuracy of certain facts as of a specified date. A lender or bank requires an estoppel letter or certificate from the homeowners’ association prior to closing on a property within the HOA.
What it Includes
HOA bylaws will usually contain rules for an estoppel letter submission, as well as guidelines for responding to letter requests. An estoppel letter should include the current homeowner’s name, property address, and financial obligations (such as monthly dues and upcoming special assessments). It will also certify if, and how much, the current homeowner owes to the association in liens, unresolved fees, or other charges, as of a specified date.
What it Does
In short, an estoppel letter helps to ease the transition of a property from a current to a new owner, and exists to protect and benefit all parties involved in the transaction:
- The buyer benefits from having a clear understanding of what his/her expected financial obligations will be, including monthly association dues and any special assessments for upcoming projects, such as repaving driveways, landscaping, or adding new amenities. The buyer can also see whether the seller has any outstanding payments and can request that they bring the payments up to date before the sale closes.
- An estoppel letter lets the seller fully disclose any problems or expenses with their property before they sell. The letter also provides the seller with an opportunity to reconcile any outstanding balances with the association.
- The homeowners’ association itself is protected in the event that a lawsuit ever occurs over financial disputes with a homeowner. An estoppel letter can be valuable evidence in verifying the details of the legal agreement between the HOA and the buyer at the time of the sale.
- The lender also benefits from an estoppel letter, as it provides them with the information they need to include any appropriate expenses in closing costs for the sale. They will also be able to determine whether they will be required to pay any fees to the HOA. Finally, an estoppel letter will help the lender determine whether the sale meets the legal obligation of the HOA.
What it Costs
The fee for an association or HOA management company to prepare an estoppel letter will vary widely and can cost anywhere from zero to $500. Additionally, payment is usually required up front, rather than at time of closing. It’s also important to check state and local law as there may be requirements regarding the timeframe in which the estoppel letter is prepared and additional rush fees may be required if your letter has a tight deadline to meet.
We hope this article answers any questions you have about estoppels and how they function. Estoppels serve many purposes, as you see above. They are valuable tools of information during the homebuying process.
