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Do you need an estoppel if you’re paying cash for a condo at auction?
Homebuying & Selling Tips Homeowners Association

Do you need an estoppel if you’re paying cash for a condo at auction?

Lindsey Gordon

What kind of due diligence should you be doing for a cash deal? If you’re looking into buying an investment property to rent, you may be considering a whole host of things to make your investment as sound as possible.

But what about when you’re just looking for a great deal by purchasing a foreclosure at auction? Could you be doing something to better protect yourself? It’s obvious to most people that when you’re purchasing a property at auction, it’s more about ‘buyer beware’ and when you take ownership you’re taking on the property with all its encumbrances. But most regular buyers aren’t aware of the issues they could be walking into. What they need to realize is that because they’re not working with a bank to finance, the purchase is consequently not subject to a bank’s strict due diligence requirements. If everyone protected themselves from potential risks like a bank did, we wouldn’t have unfortunate stories like the one my own mother ran into with a condo association.

One major step in buying real estate in an association at auction you shouldn't miss


One major step in buying real estate at auction you shouldn’t miss

This story I’m about to share with you is a cautionary tale about doing your due diligence and may well be one of the reasons why homeowners associations and condo associations have a bad rap. The wounds are still fresh for my family, so I’m not particularly sad about contributing to the negative perception people have of associations. I’m sure there are plenty of good stories out there about how fair and organized HOA or condo association practices made owners feel empowered rather than victimized. This is not one of those stories.

A few years back, my mom was about to invest in her first real estate purchase. She had come into a little money and planned to buy a fixer-upper to improve, live in, maybe eventually rent and then hopefully sell. She is by no means a wealthy investor doing this to make some extra cash, she fell square into the first-time homebuyer category.

She bought a small, two-bedroom condo in Bradenton, Florida for about $60k through auction knowing that she would have to invest a fair amount to make it habitable, and she had budgeted accordingly. What she didn’t know was that walking blindly into an auction property, she could be walking into a huge liability.

Before making a bid, she reached out to the association to ask whether or not there were any unpaid association dues. Whoever she spoke to on the other end told her that there was not and as far as she was aware, that was good enough for her. Now, whether or not that person on the other end was purposefully deceiving or was in some way confused about what she was asking, we’ll really never know.

What she didn’t realize at that point is that there’s actually a formal way you have to request information from an association and until you do that, they aren’t obligated to give you any information, accurate or otherwise. In Florida, that formal process is called requesting an estoppel certificate and after a major overhaul to the law in July of 2017, it’s a very stringent process the association has to follow when they receive an estoppel request. The association is legally bound to give certain information within a certain time frame, or the association is responsible for any owed amounts.


A (not-so) warm welcome from the association

No more than a month after purchasing her condo and beginning the work (performed mostly by herself and members of the family willing to pitch in), she received a certified letter with a ledger showing more than $35k in outstanding assessments for her condo unit that spanned eight years. What most people don’t know is that in many states, including Florida, associations can hold a new owner responsible for all the debt racked up by previous owners. Add to that the fact that associations have lien priority here in Florida, she had been an owner for less than 30 days and already they were threatening foreclosure if she didn’t take care of the debt.

A little background, the outstanding assessments started to accrue many years before when the then-owner died and the unit went to her family. The association actually foreclosed on the owners at that time because the assessments went unpaid. Unfortunately for the association, the original owner had a reverse mortgage that was never satisfied when the property was passed on to the woman’s family, so that bank actually came back and foreclosed on the association. Fast forward several years and the association is legally able to stick my mom with association fees that originated long before.


Getting attorneys involved

She had no other choice than to shell out money for a lawyer to work with the association. Aside from the initial shock, none of us felt that this $35k balance could possibly be right. Every cent she had to put towards paying off the association debt was money that couldn’t be used to fix up the unit that needed to be completely gutted. Our intuition was right because it turned out the association had grossly overestimated the amount that my mom was actually obligated to pay for. They couldn’t charge her for debt that was older than 5 years, and she also could not be responsible for payments owed to the association while the association was the owner (which was about a one year period.) In the end, she paid the association close to $15k and a few thousand to her attorney. That meant she couldn’t update the bathrooms and missed out on putting additional value into the property.


Lessons learned from going in blind

What seemed like it would be a steal, to begin with, still remains to be seen whether or not it was a worthwhile investment. Between the purchase price, the cost to pay off the association and the renovation costs, she’s in it for more than it’s currently worth, but we’re hopeful property values will continue to climb, and she’s looking into options for using the condo as a vacation rental to recoup some of her costs. In the end, everything worked out to be okay.

To be honest, it could have been worse. She’s lucky there weren’t municipal debts, or expired, or open permits, she would have to deal with on top of the association dues. Knowing what we know now, between my knowledge gained working for PropLogix and the experience she had, the whole family is a lot wiser for it.

For those buyers who are not familiar with the risks that they can walk into, whether it be an auction, a cash deal, or if they’re obtaining financing — buying can always carry risks when you can assume existing property debts. Your best defense is to be educated — between title insurance, municipal searches, association research, if you’re going to buy real estate on your own, it’s important to know about these things — there’s a reason these are becoming more and more common practice in Florida and beyond.

Auction properties are advertised in advance of their auction date, so spend extra time to do the research yourself, or the cash to outsource a municipal lien search or association research (or estoppel certificate) as a buyer — it may cost a couple hundred dollars, but it’s better than getting stuck with thousands in debt in the end.

Interested in learning more about homebuyer’s due diligence? Check out our Real Estate Due Diligence for Homebuyers series.

deciding whether or not to outsource estoppels

Lindsey Gordon Director of Communications

Lindsey Gordon is the Director of Communications and video producer at PropLogix. She loves using video and digital media to help educate the title industry and help clients and give the world a glimpse of what it’s like to work at PropLogix.