3 things every CAM manager should know about HOA resales [Free Estoppel Letter Template]

Posted by Andrea Drennen, CMCA on January 31, 2014

HOA-Resales

An important aspect of any professional CAM manager's job is dealing with home resales that occur in the community. Unlike the realtors, brokers and other real estate professionals who are looking out for the interests of the seller or the buyer in a sale, the CAM's job is to look out for the interests of the community association.

A word of warning before we begin: every state has different requirements for the HOA's responsibilities and rights in resales. If you are not familiar with the laws regarding resales within an HOA in your state, be sure to consult an attorney versed in community association law before you do anything! That said, regardless of where you live, there are certain similarities that apply to all homeowners associations associations regardless of where you hang your hat...

  1. You're always going to be the last to know

    Most homeowners aren't aware that the HOA needs to be informed when they are going to sell their home, or they assume that you have some kind of telepathic powers so that you automatically know they are selling their home, even though they didn't bother to inform you. ("But we're closing at 2pm and it's Noon now! Can't you do it quickly?") Since you don't have telepathy, you're going to have to settle for always finding out about a resale in the associations you manage at the very last minute. That's why it helps to be prepared to process a resale at the drop of a hat.

    Expediting a task like this, especially at the last minute takes away from your regular schedule, so don't be shy about charging for the service. Most states allow at least a modest charge for generation of this document.

  2. Your Estoppel estimates had better be correct...or else!

    An Estoppel letter (also called an Estoppel Certificate, Resale Certificate or a Closing Letter) is a declaration by the HOA of all of the outstanding debts and violations on a property. Fun fact: estoppel comes from an Old French word meaning stopper, as in a drain plug. Today, estoppel is primarily used in legal terms, and it generally describes a document or argument that establishes what has happened and what has been agreed upon so that neither party can claim something else in the future.

    "It is vital that everything is correctly listed on the Estoppel letter; the HOA will not legally be allowed to collect on unreported dues or fees in the future."

    In the case of a resale in an HOA, the Estoppel letter is intended to protect the HOA, the seller and the buyer by establishing the amounts due (Past dues and future dues to the effective date) and actions needed to be taken (outstanding violations or architectural issues) prior to a new homeowner taking over the property. The letter has an 'Effective Date', which is usually the date of the scheduled closing. Once you have submitted an Estoppel letter, the HOA is held to the information listed on the Estoppel, and may not update the information unless the effective date passes and a new Estoppel letter is allowed to be created, so it is vital that everything is correctly listed on the Estoppel letter; the HOA will not legally be allowed to collect on unreported dues or fees in the future.

    Some states have specific requirements for content and filing procedures. In the interest of not rehashing a topic that others have covered really well, I am simply going to refer you to one of the many sites that have written about generating Estoppels such as here and here in Florida, here in Texas, and here in California. We have also prepared a free sample Estoppel letter that you can customize to meet your needs.

    Free sample estoppel letter template

    If you're a TOPS user, you can import this sample letter into your TOPS' form letter program to auto-generate your estoppel letters. If you don't use TOPS, you can still use the letter! Just open it up in MS Word and manually replace the merge codes with the correct information for each specific resale you process.

  3. You need to retain an accurate history

    Once the Estoppel terms are satisfied and the resale has been successfully concluded, it's time to change the owner in your accounting/management software. Any outstanding violations, architectural complaints or owed dues should have been handled prior to the sale through the Estoppel, so it's time to wipe the slate clean. But don't just delete everything! You'll need to retain the history for potential legal problems in the future.

    One of the features that sets CAM accounting software apart from generic accounting packages like Quickbooks is the ability to automatically retain a full electronic history of home ownership in the community. As the legal account of the association's affairs, this history needs to include a comprehensive record of all home sales (settlement and resale dates), accounting history (charges and payments) and property changes (violations and architectural change submissions).

    If you're not using an industry specific software, you'll need to make sure you store this information prior to activating the new owner. At minimum, you should print the history data listed above and store it with the other records for the home.

Remember that the CAM's primary role in this case is protecting the rights of the association. As long as you are following all of the legal requirements and covering your association's back, owner resales should go very smoothly. 

 


 

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