Proposed Legislation Would Shift Cost of Estoppel Letters to Sellers

Proposed Legislation Would Shift Cost of Estoppel Letters to Sellers

The Florida Legislature is considering legislation which would require that sellers of condominiums and houses within property owners associations bear the cost of estoppel letters in pending sale transactions. The practical effect of this proposal is that title companies and law firms providing title insurance would no longer advance the cost of estoppel letters and condominium and property associations will have to wait until closing to get paid for this service.  The proposed legislation HB 203 and its companion bill, S 722, would amend F.S. Sections 718.1161, 719.168 and 770.3085.

If passed, the law would require that estoppel certificates be delivered electronically and that they include certain specific information and be effective for at least 35 days. The fee for estoppel letters would be capped at $200 if no delinquency exists on the unit, plus $100 for an expedited response and an additional $200 if a delinquency does exist on the unit.  The estoppel must be provided within 10 business days of request.

Associations argue that the proposed law will unduly burden associations and their residents because the cap on the fee is too low and the excess cost will be passed on to the residents. They further argue that where the case is complicated, the time involved to prepare the estoppel will cause a bigger loss to the association.  These arguments are without merit.  In communities that are professionally managed, the fees charged for preparing estoppel letters are a profit center to the manager.  The records are computerized and a book keeping clerk can access the information in a matter of seconds.  In fact, large communities often have a person on staff whose sole responsibility it to prepare estoppel letters.  Where the case is complex, the proposed law provides for an increased fee.  But again, a professionally managed community will have little to no difficulty obtaining this information.  Or, the law firm handling a lien foreclosure or collection should be able to prepare an estoppel quickly and without effort. And, to the extent that there is a “loss” on an occasional file, the majority of estoppel requests should be handled at profit levels so as to more than offset these small losses.

As to smaller and self-managed communities, these associations don’t receive high volumes of estoppel requests and they don’t often pay a 3^rd party to process the requests.  Therefore, there is usually no loss to assess to other owners.

Associations also fear that if the transaction doesn’t close, they won’t get paid. The proposed law provides that payment is to occur when the unit closes.  So, the next time there is a request for an estoppel, the prior fee should be included on the estoppel as an outstanding payment owed.  The association has a built-in mechanism to assure that it will get paid.  Contrast this with a title company’s ability to recover.  Under current practice, an association requires that the fee be paid up front before it will issue the estoppel.  Most of the time, the title company will advance this cost.  If the closing does not occur, there is not guarantee that the title company will be selected as the title company for buyer’s next deal (or it is Palm Beach County, the next time seller sells the property).  In these cases, most times the title company is forced to write off the loss.  HB 203 will eliminate this loss.

If this legislation is enacted, the average consumer probably won’t notice anything. A shift of $200 from one side of the closing statement to the other is hardly anything most people would notice.  What could be interesting, however, is the battle among lobbyists that is forthcoming.  Condominium association and property association lobbyists v. real estate and title industry lobbyists – Goliath v. Goliath – which might result in a stalemate.