Condo & R/E Law – Estoppels and Affidavits When Association Has a Pending Loan
Condo & R/E Law – Estoppels and Affidavits Unit When Association Has a Pending Loan
Mr. Andrew Cuevas, Esq., is the President of Cuevas, Garcia & Torres, P.A., and Vantage Property Title Company, and oversees the Community Association Law Division of the law firm as well as the real estate transactions practice (including title insurance services) of the law firm and Vantage Property Title Company. If you have any questions regarding this article or any other questions, you can contact Mr. Cuevas at (305) 461-9500 or at [email protected]. If you are interested in reading previous newsletters, please visit www.cuevaslaw.com, select the icon for Newsletters , and then choose the area of law you are interested in.
A frequent scenario faced by Community Association Boards is when the association receives requests for estoppel letters or requests for the signing of affidavits in order to assist a current unit owner to sell their unit, and in other words, to induce a lender to lend monies to the potential buyer. The scenario gets complicated when the association has a lien recorded against it from a municipality for some type of violation or the association has a recorded a mortgage or assignment of assessments in favor of a bank which has lent monies to the association for the association’s operations. In the scenario presented in this article we will discuss a possible solution when an association borrows money from a lender to make improvements to the common areas and the loan has been secured by a recorded assignment of the maintenance assessments charged to the unit owners.
Scenario and Solution:
A unit owner wants to sell his unit, is up to date with his assessments, but is now faced with the situation of having to receive assistance from the Association because the buyer’s lender and the closing/title agent needs an affidavit signed by the association stating that the association has sufficient funds to pay the loan. Can the association rightfully sign the affidavit that it has sufficient funds to pay the loan when in fact the Association does not have the funds because it is paying the loan based on an ongoing special assessment? The Association probably could not sign this affidavit since most likely it would be making a false statement which induced a purchase money lender to provide a loan to the buyer. If the buyer defaults on the loan a creative lawyer representing the bank may initiate an action against the Association to seek a partial or total recovery of its losses because of an alleged fraud committed by the association.
Does this mean then that if an Association obtains a loan that no unit owner can ever sell until the loan is paid off in full? Of course not! Legal counsel for the Association should review the terms of the association’s loan and determine how the loan is being repaid. For title insurance purposes, the closing/title agent may rely on the association estoppel letter that also refers to the specific loan and provides that there is nothing owing from this unit with regard to those portions of the assessments paid to the association that are allocated to the loan payments. This would protect the Association and also allow the closing/title agent to issue title so long as the payments are not to be made by unit owners directly to the lender and the association estoppel letter confirms that there is not anything due from this unit with respect to payments on this particular loan. There are situations (though admittedly very few) where unit owners make the loan payments directly to the lender, and there have been title policy claims because an estoppel letter from the lender was not obtained prior to closing. There is not one solution for all situations, but the Association should work with the closing/title Agent to formulate the correct affidavit to assist the unit owner in selling their unit.