When buying a property that’s in a homeowner’s association (HOA) we will need an estoppel letter in order to close on the deal. This is separate from the title search that we covered in the last post.

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Links to the past two posts if you missed them:
The Title Search
The Appraisal

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Estoppel Letter

An estoppels letter provides information about the seller’s property in regard to the HOA.
It lets us know…..

• The cost and payment frequency of maintenance fees
• If there are any back dues on the property
• Any community assessments planned or in the works
• Any liens the HOA may have placed on the property

The seller or the title company will request the estoppel letter from the homeowner’s association. Many times this is done through the management company of the HOA community.

Timeline and Useful Life

The estoppels letter must be produced within 15 days of the request.
It will provide a figure of monies owed or due through a certain time period. Usually that period is up to your closing date.

Example – The monthly dues on a property in XYZ community is $250. The owner is one month behind and the next payment is due November 1st. The closing date on the sale is November 1st. The estoppel letter would read that $500 is due on November 1st for there to no longer be any amounts due on the property until December 1st, which marks the next monthly payment.

That’s a rather clean example. However, if the property is a short sale or foreclosure there will likely be back dues and penalty fees that have accumulated. Let’s say dues have not been paid for a year and late fees have also been tacked on bringing the total to $3500.

If that’s the case, the estoppel letter could read something as such:

• If $3,750 is owed through November 1st. If that amount is paid there will no longer be any monies due.

We get the $3,750 by taking the $3,500 back dues and fees then adding in the $250 due on the 1st for that month’s dues.

Additional Info

Along with stating the balance due, nearly all estoppel letters will provide the following information:

• Name of the association
• Name of the home owner
• Signature by an officer of the HOA or its agent.
• Instructions on where to send payment

Who Pays?

As for the estoppel letter itself – the seller pays for it. The cost usually ranges from $100-$300, but can be upward of $500

In regard to the monies due as stated in the letter. That is paid by the seller in order to close. Especially on regular sales that are using financing.

However, that is not 100% set in stone. A buyer can pay if they choose in order to close a deal.

Why would we ever want to pay on a property we are purchasing though?

Well, this could occur with foreclosures, short sales or auction properties.

Example - The bank may not be willing to bring any money to the table on a foreclosure or the HOA is not willing to take a settlement deal from the bank. In that instance you would likely have a choice of paying those costs so you can get the property or letting the deal fall apart.

Having a buffer built into your numbers is always prudent, especially when dealing with foreclosures and the like.

That’s why we do our research and use the property calculator to “buy right!”

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Download the property calculator free at ScaredyCatGuide

Regards,
Mitchell J