An estoppel is a legal document provided from a homeowners association (HOA), or management company that operates on behalf of an HOA, describing the current financial status of the unit or property; this includes past due balances, current fees, and future special assessments. Neglecting to obtain an estoppel before your closing could create a whirlwind of trouble. Here are different issues that can arise:
1. The new owner may be liable for the delinquent balances. At Estoppels.com, it’s not uncommon for us to find balances of over $100k of unpaid dues or assessments. The really unfortunate part is that if this balance goes unnoticed for months after a closing, there will be interest added to the balance on a monthly basis, meaning the cost to a new owner will just keep growing and associations can place a lien on the property or unit and if the owner can’t pay the balance, they may lose the property to foreclosure.
2. You could miss upcoming special assessments. This is information that would be pertinent to a buyer who needs to understand the full extent of the cost they’re expected to cover on top of regular dues, maintenance fees, and mortgage payments. Special assessments in HOA’s can range from as little as $5 a month to thousands per month. If the buyer is not aware of these fee’s they can end up in serious debt.
3. Missing a Capital Contribution fee could mean a big, unexpected expense for a buyer. A Capital Contribution is typically a one-time fee assessed to a new unit or property owner for “joining” the association and we’re seeing them more often all the time. Most of the time this fee ranges from $500 to $3,000 — which isn’t small change when a buyer isn’t expecting this cost.
4. When buyer approval is required by the association, but you didn’t know it – This could leave a new buyer in serious hot water with the HOA. It some cases, it could halt the closing altogether, but if you have closed on the property without their knowledge and neglected to get buyer approval, the association can either slap a new owner with a violation, or in extreme cases, if the association claims right of first refusal, they can actually kick a new owner out and opt to purchase the unit.
5. You’ll miss existing violations – If your property is in violation of the association’s bylaws, you can receive fines that accrue interest if not paid. Violations issued for infractions as small as a garden gnome in the wrong spot, to broken gutters–we’ve seen it all. When violations go unpaid, they can escalate to liens and when the association can’t collect on a lien
6. Missing additional associations where money is owed. re there additional associations where money is owed too? There are many subdivisions within a master association that collects dues.
7. Using an outdated estoppel could also spell problems. So this is a little different than not getting an estoppel at all, the problem here is that you got the estoppel, but allowed the good-through date to lapse before closing. Each Estoppel has a 30-day good-through date where the information is deemed acceptable. If you close on your property after that 30-day good-through date, there may be outstanding assessments or new violations you don’t know about and you may be on the hook for additional fees.