The word this week is Estoppel.
Generic legal definition that you should IGNORE: A legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct, allegation, or denial.
Layman's description (not a legal description) of what estoppel means in a condo or homeowners association: an estoppel certificate is a document which describes outstanding fees that an owner owes to his/her association as of a certain date.
When a home is sold, the new owner and the old owner are "jointly and severally liable" for any amounts owed to the association. What this means in practice, is that any debt to the association stays with the property when a title transfers. These debts include: maintenance dues, late fees, fines, interest, legal fees and special assessments outstanding at the time of the transfer.
If the new owner does not obtain an estoppel certificate they will not be aware of any amounts owed to the association by the prior owner and they may be inheriting a huge debt which they are responsible for. This is why it is necessary to make sure any outstanding debt (or acknowledgement that no money is owed) is properly disclosed, via an estoppel certificate as a protection to the new owner. Often the title company will request an estoppel certificate on the owner's behalf and any amounts owed will be paid off at closing.
Why does it cost money to get an estoppel? Someone has to take the time to do the research and prepare the certificate for the sale to happen. It is critical that the information is correct since the estoppel is legal proof of the amount owed. The owner (not the association) has to pay for this document, which is typically prepared by the management company, association staff, association attorney or bookkeeping company.
Estoppels are rarely as simple as providing an amount owed. In addition to listing any amounts owed to the association, the estoppel often contains other critical information such as:
- Are there any outstanding violations on the property?
- In addition to the regular maintenance, is there a special assessment ongoing?
- Are there any pending special assessments that may not have been billed yet?
- Is a capital contribution required?
- Are there any other associations this property owner may owe money to?
These are just a few of the dozens of questions that are often asked by title companies on estoppel requests, which can become very time consuming.
Here is a short article that describes the law around estoppels.
Legal disclaimer: I am not an attorney. This should not be considered legal advice.