Congratulations! You're in the final countdown to closing on your new home! All the hard work you put into this process is finally paying off, and you’re ready to relax in your new home. Your realtor, however, tells you that there’s still one final HOA document that’s required at closing: an estoppel.
You’re disappointed to find that another document is needed, which may mean more fees. Maybe you turn to the internet to shed some light on what an estoppel is and why it's so important — that’s probably why you're reading this now!
To start, let’s talk about the name. An estoppel is a statement of accounts between an HOA and a specific property within that HOA. It is presented at closing to resolve all accounts between the HOA and the seller before the property changes ownership and is usually served as an introduction between the HOA and buyers. This document ensures that all remaining dues and fines owed to the HOA are paid by the seller, so the new owner isn’t responsible for the previous owner's debts.
Estoppels aren’t commonly used in every state. An estoppel may also be referred to as a statement of accounts, status letter, resale certificate (or resale demand), demand letter, trustee letter, etc. A lot of different names for a single but very important document. Generally, Estoppels are a naming convention for this type of document in the state of Florida.
If you’re having difficulties looking for an estoppel in your area, try one of these alternative names out instead. It might be referred to as one of these in your state or county. Alternatively, contact Association Online and we’ll help locate your estoppel documents.
Estoppels list pertinent information about a property included in an HOA: how much the dues are, the frequency at which the dues are owed, the address for mailing payments (or other payment instructions), the name of the HOA, and the contact info of your HOA manager. It also includes information about any additional fees, such as special assessments, working capital, transfer fees, new member fees, etc.
Your closer will make sure all fees and charges are included in the final contract agreement. That way, you’ll have all the pertinent information you need when purchasing your new home. It is a good idea, however, to go over this information once again after closing. Estoppels contain a lot of useful information about the HOA, so it’s your responsibility to understand and know what’s in this document.
Let’s dive a little deeper into what information is included in an estoppel.
As mentioned above, an estoppel includes details regarding fees — and other important information — for both the owner and the HOA. The most common details are related to:
The estoppel will report the seller’s outstanding balance and paid through date, in relation to the required prepaid dues amount mentioned above. If the seller has a credit with the HOA, the amount of prorated dues to be paid back to the seller will be listed, based on the closing date. If the seller has a balance of unpaid dues with the HOA, the estoppel will disclose this and also prorate the appropriate amount owed between the buyer and the seller so that you have a clear title upon purchase.
A “related HOA” is another association connected to your property’s homeowner’s association. Estoppels may include references to all other related associations connected to your property's HOA. In a multiple-association neighborhood structure, there may be a master association — such as a recreational, landscaping, or water association — and there may be a sub-association, such as a condominium or a townhouse section you live in.
If your property is related to multiple HOAs, the title company must acquire the estoppel and documents for each association. You may have to pay dues to each association, but sometimes all HOA dues are paid to one sub-association; the sub-association then distributes the funds to the master HOAs.
When there is a transfer of ownership within an HOA, a transfer fee is often charged to the seller. This fee pays for admin changes such as updating HOA records and replacing mail & gate keys for the new owner. Sometimes the cost for the estoppel is included in the transfer fee.
The HOA transfer fee is sometimes called theclosing fee, admin fee, new member fee, initiation fee, etc. Transfer fees can vary from $0 to $350 or even more! Don’t be too alarmed at the possible cost, though; it all depends on the structure and practices of the HOA and the state you live in. These fees are usually due at closing, facilitated by the title company, and paid by the seller.
Working capital is money the HOA holds in reserve for liquidity. These funds are often acquired when the homes are first sold and used to manage outstanding balances. Sometimes the working capital fees are collected again at resale. In this instance, these fees are paid by the buyer or credited to the seller and charged to the buyer's ledger.
The association’s covenants describe how these monies are handled by each new owner. They may require the money paid by the original buyer to be transferred to the new owner with no change in the amount. They may state that the working capital is a calculated figure, such as two months’ dues, whereby the seller will be refunded his working capital in the number of two months’ dues he paid at the time of purchase, and the new owner will pay two months’ dues based on the current dues rate. Alternatively, the association’s covenants may not require the second or future homeowners to pay anything at all, whereby the original owner made this investment and will not receive a refund.
A special assessment is usually an additional fee charged to homeowners to cover a cost that is temporary and often unforeseen by the HOA. For example, this might be a fee to help cover the cost of roofing repairs after destructive hailstorms or re-pavement of private neighborhood roads after years of wear. The best-run HOAs will save for repairs and maintenance that are both expected and unexpected by holding these extra funds in a reserve savings account. They try, however, to not over-save too. This means that at times they must charge a bit extra to cover these unforeseen expenses mentioned above.
Some HOAs actually choose, as their policy, to only pay for capital improvements through special assessments and never keep a reserve savings account. The HOA board may bring these special assessments before the homeowners for disapproval beforehand (only the board can approve the assessment), but these fees may already be in place when you purchase a new home.
The amount of a special assessment fee varies by the reason for the fee. If it is to cover roofing repairs for an entire condominium, it may be $3,000 per homeowner to be paid over three years. Or it may be an additional $30 per month to pay for street lighting. If the special assessments listed in your estoppel are unclear, reach out to your HOA management company or HOA board for more details.
If the HOA management company charged for the creation and delivery of the estoppel, this fee may be included in the estoppel as well. This may have been paid upfront when the title company obtained the closing paperwork and will show as $0 on the estoppel letter but will show as a reimbursement expense to the title company. If the management company uses a third-party software company to facilitate the estoppel, you may also see a software fee included in the price for the estoppel.
Now that we’ve gone over some of the more common fees, you might wonder why there are so many fees in estoppels. The number of fees and charges that appear within your HOA estoppel at closing can be very discouraging, but remember that this is your HOA being transparent about their accounting. Each fee serves a purpose for your HOA that, in turn, is serving you. One fee may pay for the admin work of updating the owner name in HOA accounting for billing purposes. Another fee may include the cost of making your new pool key.
Some fees may seem excessive, like a $300 deposit toward the HOA’s working capital fund, but you should also note the possibility of these amounts being returned to the property’s seller. Some of the fees you pay out as a buyer are returned to you when it is your turn to sell the home. If you ever see a fee that doesn’t make sense, you can always contact your HOA management company or board members for clarification.
Estoppels are always provided by the property’s HOA management company or board members. The title company is responsible for ordering this document; the estoppel fee is usually paid by the seller. There is a trend, however, for this fee to be split between the buying and selling parties — or paid by the seller. This distinction is negotiated in your contract.
Your title company and other professionals conveniently manage the purchase and organization of these fees for you. The total amount of fees owed by the seller and buyer are usually paid at the actual closing. The deadline to pay for these fees and who is responsible for getting these reports can vary, but the professionals helping in your transaction will have it covered. Speak to your real estate agent about these requirements and expected costs if you have questions.
Association Online specializes in acquiring specific HOA documents required for real estate closings, especially estoppels! So you know your fees before you buy, AO can provide you with a report which lists all the possible fees and charges that may occur in your real estate closing in any given association. We make the process seamless for the title company, real estate agents, and buying and selling parties. Our services often even save the transacting parties money. Contact us today to find out how you can get the estoppel while saving time and extra fees.