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Estoppel Certificates Explained

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Q: Our small condominium is self-managed. We recently received a letter from a title insurance company telling us we are required to give them an “estoppel letter” within the next ten days. No one on our board knows what that term means. We did some internet research and see that it involves closings. Can you shed any more light on what we are obligated to do? (E.S., via e-mail)

A: The association is obligated by statute to provide an “estoppel certificate” within 10 working day of receipt of a written request. The word “estoppel” is a legalese term meaning that one is “estopped,” or legally precluded from taking a different position in a matter.

Estoppel letters are normally requested by title insurance companies when a unit is closing to ensure that all assessments are paid up and to prorate assessment contributions between a buyer and seller just like is done with taxes. If the title company does not verify the amount of assessments that may be due, the new owner becomes liable for all past due assessments and could then make a claim against the title insurance company for contribution.

So, when the association represents that a certain amount of money is due for a unit, the title company and the closing agent rely on that number in calculating the closing adjustments and issuing title insurance. In other words, when the association responds that a certain amount is due, it is “estopped” from later claiming some other amount is due, because the parties have relied upon the numbers provided. That is why it is important to be very careful in preparation of these documents, which under current law, also require the provision of additional information not related to assessments.

Q: I recently attempted to obtain a mortgage on my condominium unit. The bank stated that they would not lend me money unless my association carried “law and ordinance” insurance on the condominium property. The board has stated that they do not carry law and ordinance coverage, and I could not get the mortgage. Is the association required to carry this insurance? (C.C., via e-mail)

A: Law and ordinance coverage is insurance that pays for extra expenses that may be incurred to bring property into compliance with current laws and codes when repairs are done after an insurable event. Typical issues encountered in this area include flood elevation, disabled person accessibility, and compliance with current hurricane protection codes.

The Florida Condominium Act contains detailed regulations regarding insurance of residential condominiums. The statute provides that every association must carry “adequate property insurance” for the “full insurable value, replacement cost, or similar coverage” based on the replacement cost of the property as determined by an independent insurance appraisal. Such insurance appraisal must be performed every 36 months.

There is no specific requirement in the statute that “law and ordinance” coverage be carried by a condominium association. I have heard it argued that the requirement of law for “full insurable value” includes law and ordinance coverage. I have heard the opposite point of view argued. As far as I know, the issue has never been addressed by a Florida appeals court.

Some condominium documents require the association to obtain law and ordinance coverage. I have also seen documents that state that the board has the authority, but not the obligation, to purchase such coverage. Many documents are simply silent on the issue.

I have seen cases where this coverage was available but considered prohibitively expensive. I have also seen cases where there was no coverage and significant special assessments were required after a loss. The fact that a bank does not want to lend money due to the lack if this coverage says something.

Therefore, this is one of those issues where a right answer does not necessarily exist. Absent unusual circumstances however, I can think of few situations where an association would not want to have this coverage.

Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com. Past editions may be viewed at floridacondohoalawblog.com.

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