Most condo properties are under the direct governance of an HOA (homeowner's association). Any condo owner under the HOA must pay dues, usually on an annual basis. When seeking lending for a condo, your lender may request a condo estoppel certificate that shows there are no outstanding dues.
Why does a lender ask for a condo estoppel certificate?
The lender will want to see this certificate to protect their investment interest in the property. If they cannot get a certificate to show that the prior owner did not owe any outstanding fees or dues, it can mean that the property is at risk of having a lien put on it by the HOA until the outstanding bills are paid. If the lender loans you money to buy the condo without the certificate and later the HOA decides to place a lien on the property due to failed payments by the prior owner, the lender could potentially lose their own lien on the property.
What happens if a condo has outstanding HOA balances?
If the condo is affiliated with outstanding HOA balances, the HOA can take whatever steps were outlined in the prior owner's contract to recoup their losses. Most often, the HOA will place a lien on the condo until outstanding debts are paid. Therefore, the condo estoppel certificate is a valuable thing to have as a buyer.
Why is the estoppel certificate important for both the lender and the seller?
The estoppel certificate is important to the lender because it gives them clarification about the potential risks of financing the property. As the buyer, the certificate is going to help you get financing for the property but will also let you know that there is nothing that will come up later due to outstanding payments to the HOA.
Do you have to seek the condo estoppel certificate on your own?
Different lenders will take different routes to obtain the estoppel certificate on a condo. Some will seek the certificate on their own when you apply for lending and others will expect you to obtain the certificate on your own.
Will the lack of an estoppel certificate mean you can't buy the property?
If the HOA does not provide the estoppel certificate, most lenders will not finance the property. It is important to work with the HOA over the condo to find out why they are refusing the certificate. In some cases, simple oversight will be to blame, but in others, they may not be providing the certificate because of an outstanding balance.
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