What is an estoppel certificate?

By
Real Estate Broker/Owner with American West Realty and Management 12599
https://activerain.com/droplet/556b

What is an estoppel certificate?

An estoppel certificate (sometimes referred to as an "estoppel letter" or "estoppel agreement") is a document used in real estate and mortgage activities. It is generally completed by two parties and then confirmed by a third party to ensure everyone understands and agrees to the same terms and conditions.

As a property managager / investor, I use the estoppel to confirm important information before transferring the property between owners or property managers. Many Landlords keep terrible records or have nothing in writing. Tenants are also forgetful or they try to take advantage of a new owner's limited information. Rather than take them at their word about lease terms, security deposits, and other pertinent information, I have all parties sit down and confirm - in writing - what terms are in place at the time of purchase.

 

sample estoppel certificate

I recently bought an apartment complex and many of the tenants had no written agreements. I  created an estoppel agreement and required each tenant to fill it out to the best of their ability. It included their move-in date, current rent rate, security deposit amount (if any), any appliances that belong to them, any verbal or written promises made by the Seller, etc. After the tenant completed the form, I took it to the Seller and had him verify the information and sign it. Then I signed it as the buyer, signifying that everything agreed to my satisfaction.

three men arguing

 

 

In some cases, the information did not match. One tenant claimed to have a deposit but the Seller said she did not. She also claimed her rent was 25% lower than what the Seller claimed. When there is a disagreement, the Buyer has to sit all parties down and come to an agreement that satisfies all parties or use it as an opportunity to walk away from the deal.

 

 

Here are some examples of things going wrong when an estoppel was not used:

1. New owner tries to collect rent for the first time. Tenant states they don't have to pay rent because the previous owner gave them three months free in exchange for doing some work around the property. New owner calls the previous owner and is told they "forgot to mention it" during the sales process. Say good-bye to your rent!

2. Investor bought a single-family home with existing tenants on a verbal lease agreement. They move out two months later and demand their $2,000 security deposit back but the previous owner told you they didn't have a deposit. Say good-bye to your $2,000!

3. The sales contract includes a fridge, stove, washer, and dryer. Six months later the tenants move out and take the washer and dryer with them. You call and they show receipts that they had purchased the items when they moved in a year ago. Unless you take the seller to small claims court, say good-bye to your washer and dryer!

Due diligence is not an option!

Failing to nail down this critical information can cause serious problems, cost you tens of thousands in lost revenue, or even result in the failure of your investment. If you are purchasing a property with existing tenants, use an estoppel certificate to verify the terms and conditions of their tenancy and protect yourself from forgetful (or unscrupulous) Sellers and Tenants!

Posted by

           

                                 Real Estate Sales                                          Property Management

Nathan Gesner, American West Realty

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Real Estate General Information
Tags:
estoppel certificate

Spam prevention
Show All Comments
Rainmaker
3,985,587
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

This a great stop gap document to help stave off issues in the future

Jun 06, 2017 07:22 AM #1
Rainmaker
580,479
Abby Stiller
REMAX Realty Group - Cape Coral, FL
Professional Bilingual Realtor (239) 284-8637

I love how you presented the examples and its very true how things can go wrong if you don't have anything in writing. have a great day Nathan Gesner 

Jun 06, 2017 07:48 AM #2
Rainmaker
799,821
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

An estoppel certificate is an excellent idea so everyone is on the same page amd has agreed in writing. Did you buy the apartment complex in Cody? John and I are interested in apartments or storage units.-Kasey

Jun 06, 2017 08:27 AM #3
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Kasey & John Boles we just bought an 11-unit complex in Cody. It's a bit of a fixer-upper with tenants well below market. I predict we can double the property value in two years which is why we bought it.

Jun 06, 2017 08:35 AM #4
Rainmaker
799,821
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

That's awesome Nathan Gesner.  If you find any others like that and you don't want them for yourself let us know. Or storage units. We aren't really looking to invest out of our own area, but it may be our foot in the door to retirement if we end up wanting to move to WY ;-) Kasey

Jun 06, 2017 08:39 AM #5
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Abby Stiller , it's important even if there is a written lease agreement in place, but doubly so if there is not one!

Jun 06, 2017 08:48 AM #6
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

William Feela it will save a lot of headaches and money. Thanks for commenting!

Jun 06, 2017 08:48 AM #7
Rainmaker
492,634
Steffy Hristova
HomeSmart Elite Group Tempe AZ Tel: 480-966-9353 - Tempe, AZ
Tempe AZ Realtor - Your Home Close to Your Work!

Great information, Nathan. In AZ we have a Seller

RESIDENTIAL INCOME PROPERTY ADDENDUM (1-4 UNITS)
 
 
TO RESIDENTIAL SELLER’S PROPERTY DISCLOSURE STATEMENT
with questions about contracts with Tenants. This helps remind Landlords/Sellers to disclose those items.

 

Jun 06, 2017 09:43 AM #8
Ambassador
2,804,747
Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Nathan - Good explanation. At our last update class, the instructor asked how many (out of around 45 attendees) had ever used an estoppel certificate - I was the only one who raised my hand

Jun 06, 2017 02:08 PM #9
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Steffy Hristova that sounds like a great tool. Our state doesn't have anything like that available and most buyers/sellers never even think about it. They just assume the Landlord and tenants are telling the truth.

Jun 07, 2017 11:34 AM #10
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Dick Greenberg It's certainly not common knowledge, even among investors with multiple properties.

Jun 07, 2017 11:35 AM #11
Rainmaker
2,251,499
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good Morning Nathan - it is best to do all of the due diligence in a transaction like this.  I am sure you ironed out the differences before closing.

Jun 11, 2017 06:28 AM #12
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

We certainly did, Grant. One tenant tried claiming her rent was 30% lower than it actually was, despite having paid the same rent rate for several years.

Jun 11, 2017 07:24 AM #13
Rainmaker
3,445,134
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Nathan an award winning post without the Gold Star.... this is such an important post. I have been in situations where I represented the  seller and the seller and the long term tenant agreed to different number on the Estoppel Certificate i.e.: the dollar amount of the security deposit, just not to hold up the sale. Seller figured he is better off taking a couple thousand dollar hit.... we wanted the certificates for the closing....

Jun 11, 2017 10:51 AM #14
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Endre Barath, Jr. it can really save your bacon. On a single-family rental, a difference of a few hundred won't break the bank. Buy 10, 20, or 100 units and being off by $50  - $100 per unit can add up quickly. I'm glad you got yours straightened out.

Jun 12, 2017 05:16 AM #15
Ambassador
531,320
Tracy Santrock
Fonville Morisey/Santrock Realty Group, Inc. - Cary, NC
Raleigh - Cary Realtor/Broker In Charge

I admire your dedication to so many rental properties.  It's hard to find a great property management company and you seem to be at teh top of your game! 

Jun 12, 2017 04:09 PM #16
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Thank you, Tracy. It's a niche and takes time to develop but has been very rewarding.

Jun 13, 2017 06:42 AM #17
Rainmaker
1,426,835
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Nathan, 

every ounce of time you put into this is well worth it when the property exchanges hands!  Nice job explaining it. 

Jun 16, 2017 03:28 PM #18
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Thank you, Sheri. A stitch in time saves nine! Have a great weekend!

Jun 16, 2017 05:38 PM #19
Rainmaker
5,978,111
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Thank you very much for sharing this information.

Have a very special weekend.

Jun 17, 2017 10:43 AM #20
Rainmaker
4,798,978
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Good morning Nathan.  This is great information for both buyers and sellers.  We deal with estoppel certificates/letters regularly here in Florida with condo and gated communities.

Jun 18, 2017 04:39 AM #21
Rainmaker
587,111
Nathan Gesner
American West Realty and Management - Cody, WY
Broker / Property Manager

Thank you, Gabe. I've never seen another agent use them in my area and nobody I've spoken with even knows what they are.

Jun 18, 2017 06:22 AM #22
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
587,111

Nathan Gesner

Broker / Property Manager
Ask me a question
*
*
*
*