When you buy or sell a property that has a homeowners association, you need an estoppel letter. It explains to everybody involved what the monthly dues are, what special assessments may be coming and whether the owner's payments are current. It also explains whether the association will have to approve the new owner. This estoppel letter is legally binding, meaning you can be involved in a lawsuit if the terms of the letter aren't met.
Benefits for the Buyer
Having the monthly dues spelled out helps the buyer understand exactly what the property will cost each month. Homeowners' dues are often collected by the bank at the same time as the mortgage payments and then distributed to the homeowners association. The estoppel letter also lets the buyer know what kinds of special expenses are coming up, such as repaving driveways and parking lots and landscaping. The buyer can see whether the current owner has kept up with payments. If payments are behind, the buyer can ask the seller to bring the payments up to date before closing the sale.
Benefits for the Seller
In real estate, a seller is required to provide full disclosure about any expenses or problems with the property. The estoppel letter is part of the full disclosure. It enables the seller to reveal ongoing and special expenses associated with the property. Also, the letter gives the seller the opportunity to bring payments up to date.
Benefits for the Lender
A lender on a property sale needs to know what expenses to include in closing costs for each party. For example, if the seller owes back dues, closing papers may require payment of those dues. The lender also can see whether it will have to pay any fees to the homeowners association. Lending institutions only want to finance sales that meet legal obligations of a homeowners association, and the estoppel letter clarifies whether the sale meets requirements.
Benefits for the Homeowners Association
The homeowners association has the right to know if a buyer is committed to paying monthly dues and assessments. The association also wants to know whether the current owner intends to bring delinquent payments up to date. The estoppel letter is a legal agreement that requires payment and cooperation from both the buyer and the seller. In the event of any disputes, the estoppel letter can be introduced as evidence of the agreement between the homeowners association and the buyer, as well as the seller.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.