The Home Buyer's Friend
"Of all the gin joints in all the towns in all the world, she walks into mine."
Getting a resale certificate request can make a community association manager feel like Rick from the classic movie Casablanca. While it's good to see an opportunity for some extra cash coming in, the amount of trouble that goes with it just doesn't seem worth the heartache.
"Somehow, just because you despise me, you are the only one I trust."
Sellers hate the dreaded 'resale disclosure' process because it tacks on extra fees and hoops to jump through before a house can successfully be sold. But one glance at some of the horror stories other home buyers have endured proves that for the buyer, every one of those extra hoops can be a blessing.
"Last night we said a great many things."
The Estoppel Letter (also called a Resale Disclosure, Resale Certificate, Homeowner Resale Package, HOA Demand Letter, or Closing Letter) protects the buyer as well as the community association from starting off their new relationship on the wrong foot.
Some of the hidden dangers that a resale disclosure exposes for home buyers:
- Expectations for the new homeowner. This includes a schedule and amount of regular assessments, and any other required fees or actions (so the new homeowner doesn't get dinged for not knowing what they are liable for).
- Unpaid or past due assessments (in some states, this is transferred with the property, meaning the monies are owed by the owner of the property, even if they just purchased, and hadn't accrued the assessments themselves).
- Upcoming or ongoing special assessments, over and beyond the normal assessment charges.
- Rights of the HOA/COA that may affect the sale (some associations require that they approve any transfer of real property, or have the right of first refusal on home sales).
- Notice of pending legislation against the property or community (You might not wish to purchase a home in a community currently in a major legal battle).
- Open architectural violations on a home (which may incur fees, or force the new homeowners to remove or change the property).
- Open violations to the CC&Rs, and any fines or fees associated with such (in some circumstances, these items may transfer with the property).
- New violations or architectural changes that will be revealed in a thorough inspection (many associations conduct a thorough home inspection to look more closely for any potential issues that may be the responsibility of the seller prior to the conclusion of the sale).
"Play it [again], Sam."
In addition to the above, many resale packets are also required to include copies of the community association's Covenants, Conditions and Restrictions (CC&Rs) as well as a copy of the recent financials for the community. These items serve to keep the new owner informed of the health of the association, and the rules they will be expected to follow as a member of the association.
Some states, like Maryland, also require an 'Actual Reserves Report' to let homeowners know what savings the community has put aside for capital improvements, as well as disclosure of any health or building code violations associated with the community's common elements.
For Florida associations, a litany of other information is required to be included, such as parking spaces, storage units, provided utilities, recreational leases, various contact information and more.
Some states, such as Virginia and Nevada, give the prospective homebuyer a 'grace period' during which they may decide, without penalty, not to go through with the sale after reading this disclosure package.
What CAMs Need to Know When Processing Resales
Who requests the resale packett
"Round up the usual suspects"
Typically, the seller or the seller's listing agent is responsible to request (and pay for) the resale package. It is not the responsibility of the community association to predict a need for an estoppel, nor is it the responsibility of the Title company, although they can inform the buyer of important issues such as existing liens on the property.
Many other disclosure formats exist which may be requested also. For example, a mortgager may require extensive information about the community itself as a requirement to secure the home loan.
(If you are a seller or an agent, and are unable to find how to request the resale disclosure from your HOA, consider a 3rd party solution.)
What to Include In Your Estoppel Letter
"You must remember this. A kiss is just a kiss."
Every state has different expectations on how resale disclosures should look, but after a new law passed in Florida that took effect on July 1, 2017, the Florida resale certificate format is by far the most comprehensive.
If you are in Florida...
For communities in the state of Florida, you will need to make significant changes to your existing Estoppel letter template in order to be compliant with the law. Due to the comprehensive nature of the new Florida Estoppel Certificate requirements, there are numerous items that are not available as merge codes from your software. Even with our sample template, you WILL be required to make manual notations on the document after you print it.
This shouldn't be a problem if you are only required to complete a few Estoppels a month, but if you have a large portfolio, or your comunity experiences a high volume of turnover, you should consider skipping the form letters and engaging a third-party estoppel processing company, such as ReadyRESALE by AssociationREADY. The convenience of automating these letters cannot be underestimated for larger organizations who process any kind of volume of resale documents, particularly in light of the shorter turn-around times now required by the state.
Here is our sample Estoppel Letter that you can adapt to your needs. This letter is adjusted based on the new Florida Estoppel law that went into effect July 1, 2017, although we still recommend you run it by your community association lawyer to insure that it is compliant with state laws:
"I'm shocked, shocked to find that gambling is going on in here!." "Your winnings, sir."
How About the Rest of Us?
Most states require a much more limited resale disclosure, if they require any at all. If you are looking for a sample resale disclosure letter that works outside of Florida, we have a sample document you can use, or you can follow what many community associations across the country have done, and adopt a comprehensive format for your resale certificate, even if your own state's requirements are not as strict. Make sure you check the requirements of your state to insure that whichever format you choose, all of the information required by law is included in your letter.
Consider also the items that need to be included in the resale packet. Some states, such as Nevada, are very specific in the documents and breakdown of information they require to be included in a resale package.
Delivery / Turnaround Time
"Maybe not today, maybe not tomorrow, but soon, and for the rest of your life."
To accommodate the seller and expedite the resale process, most states require a strict turn around time between request and delivery of the resale packet. In Florida, this time limit is 10 days from the time of the request. If the community association fails to deliver the estoppel within that timeframe, they forfeit the right to charge a convenience fee for preparing the package. California also allows 10 days, while Illinois allows 30 days. Check your own state's laws to see the requirements.
What Can You Charge
"The leading banker in Amsterdam is now the pastry chef in our kitchen."
The resale package gathers a great deal of information, some of which is very specific to the individual property being sold. It can take a lot of legwork to gather all of this info, especially in light of the fact that the Estoppel serves as a guarantee by the association that the information provided is accurate. Due to the sheer volume of information that needs to be collected, the need for perfect accuracy, and the shortened turn-around times to prepare a resale packet, most states do allow a fee for processing the package. Fees are often capped by the state to an amount the legislature deemed 'reasonable', and typically range between $150 and $300.
Some states also allow for additional fees such as inspection fees for performing the final property inspection, and rush fees to be applied when sellers need the package faster than the state's allotted maximum turn-around time. Check with your state law or your community association lawyer for the specific allowances for your state.
"We'll always have Paris."
Preparing a resale package isn't easy, and in light of recent stricter legislation, many CAM managers may be feeling like they are traversing a legal minefield themselves, under pressure to provide both accurate and timely disclosure for new home buyers. You can help alleviate some of the pain by preparing as much as possible in advance with a planned document package, disclosure letter template, and designated staff well versed in the requirements.
At the end of the day, just remember that this is your first contact with the new homeowner, and hopefully, in providing as much information to them as possible in a timely and friendly way, this can be the beginning of a beautiful friendship!