Estoppels: Are They More Than Just Numbers?

If you are closing on a property in Florida, it is likely that the property is part of a Homeowner’s Association or a Condominium Association (“Association”). An Association is an organization that is typically comprised of a group of elected residents whose primary responsibilities are to keep property values high by enforcing rules, regulations, and restrictions as well as by collecting dues to ensure that the Association has sufficient funds in its coffers. As part of this collection process, the Association, typically through a management company, is responsible for issuing Estoppels which can have important implications on a real estate transaction.

What Is An Estoppel? What Items Are Included On An Estoppel? 

An estoppel is a document that certifies certain information as of a specific date. In the context of a real estate transaction, an estoppel that is provided on behalf of an Association will confirm monetary-related items such as the amount of the dues, the date the dues need to be paid, and the period for which the dues are payable (i.e., monthly, quarterly, or annually). Now when most people are reviewing an estoppel, they tend to stop their review after confirming that the dues are current and that the dues match the figures that were disclosed on the Association disclosures (either the Homeowner’s Association Disclosure or the Condominium Rider). However, ending the review at this point is premature and could be a critical mistake that could potentially expose a buyer to unwarranted risk and expense. This is because the estoppel discloses additional items that are unrelated to the payment of dues, such as whether there are any open violations on the property and whether the property and/or the Association is involved in litigation.

What Impact Would An Open Violation Or Active Litigation Have On A Buyer?

The existence of an open violation at the property, if not properly resolved prior to closing, could expose the buyer to fines from the Association. These fines, if left unsatisfied, could lead to a lien placed on the property by the Association. Some typical violations include overgrown grass/weeds and parking boats or recreational vehicles on the property (in violation of a restriction). Typically, these violations are easily resolved if they are addressed early in the transaction. Similarly, if the property is involved in active litigation and the buyer proceeds to close on the property, the buyer could be faced with the responsibility of paying off a judgment provided that the judgment is properly attached and perfected against the property. However, it is more typical that an estoppel reveals that the Association is involved in litigation rather than the property itself. The major implication of the Association being involved in active litigation is that if a judgment is issued against the Association, the Association may implement a special assessment which would be allocated to its members to be paid either as a lump sum or in installment payments. This would require the buyer to owe additional money to the Association, which the buyer may not have the ability to pay.

More Than Just Numbers. Ask Questions And Check The Estoppel Twice.

At the end of the day, estoppels are more than just numbers. They disclose critical information, such as the presence of open violations and active litigation, which could cost the buyer a great deal of money if not timely addressed. Therefore, it is vital that (1) questions are asked as to the existence of these items early in the transaction and (2) a thorough review of an estoppel is performed. If questions remain after performing both of these steps, it is best to reach out to your trusted real estate attorney for legal advice.

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