A Few Caveats to the Condominium Association Unit Sale and Loan Disclosure Process

A Few Caveats to the Condominium Association Unit Sale and Loan Disclosure Process

By Jonathan Goldstein & Justin Smith / Published December 2022

Photo by iStockphoto.com/ablokhin

Since the tragic collapse of Champlain Towers South in Surfside, condominium owners, potential purchasers, and mortgage lenders are more concerned than ever regarding the structural integrity and financials of condominium buildings.  Given the stakes, the laws that govern condominium association disclosures in relation to the sale of units and loans to condominium owners are of paramount importance and fraught with pitfalls for the unwary. 

     The information an association must disclose to a prospective purchaser or lienholder is limited in scope; in fact, “[a]n association or its authorized agent is not required to provide a prospective purchaser or lienholder with information about the condominium or the association other than information or documents required by this chapter [718] to be made available or disclosed,” Fla. Stat. §718.111(12)(e)1. As described in further detail below, these disclosures required by Chapter 718, Florida Statutes, include the preparation of an estoppel certificate upon request, a frequently asked questions and answers sheet, and the mandatory seller disclosure of particular association records.

     Section 718.116(8), Florida Statutes, requires that an association must issue an estoppel certificate within ten business days of receipt of a request from a unit owner or mortgagee. An estoppel certificate must make various specific enumerated disclosures, including but not limited to information pertaining to the subject unit, regular and special assessment amounts currently due and due in the future, and open rule violations noticed to the current owner; a complete list of estoppel certificate requirements and the proposed form are contained within Section 718.116(8)(a), Florida Statutes. 

     Associations should carefully draft estoppel certificates and confirm that the information stated therein is correct because an association cannot collect any moneys owed in excess of the amounts specified in the certificate from any person who in good faith relies upon the estoppel certificate, Fla. Stat., §718.116(8)(c). This creates a particular danger for associations that are contemplating major loans, improvement or restoration projects, and/or special assessments. Associations should always err on the side of disclosure when assessments and major projects are under consideration. Even more crucially, associations that have adopted special assessments cannot wait until they have come due to begin disclosing them. Associations are permitted, at their option, to include additional information in the estoppel certificate, but should be cautioned that if an association chooses to include additional information, it should seek the advice of counsel as it could create additional liability for the association, Fla. Stat., §718.116(8)(a). 

Photo by iStockphoto.com/ablokhin

     Section 718.503(2), Florida Statutes, governs non-developer sales disclosures and requires unit owners selling their units to provide prospective purchasers with specific association documents. Copies of the following documents must be provided, at the seller’s expense, to a prospective purchaser who has entered into a contract for the purchase of a condominium: (1) declaration of condominium; (2) articles of incorporation; (3) bylaws and rules; (4) financial information required by Section 718.111, Florida Statutes; (5) a copy of the inspector-prepared summary of the milestone inspection report as described in Sections 553.899 and 718.301(4)(p), Florida Statutes, if applicable; (6) most recent structural integrity reserve study or a statement that the association has not completed a study; and, (7) the “Frequently Asked Questions and Answers” sheet required by Section 718.504, Florida Statutes. According to Fla. Stat. §718.503(2)(a), in preparation for any proposed sales (and records inspection requests in general), associations should have the foregoing documents maintained and open to disclosure as part of their official records.  In the case of milestone inspection report summaries and structural integrity reserve studies, associations will have to adjust to ensure these are accessible once they become available. The frequently asked questions and answers form should be updated on a yearly basis using DBPR Form CO 6000-4 and maintained as part of the official records of the association. 

     In contrast to those forms and records that MUST be accessible for disclosure to prospective purchasers are the categories of information and documents that associations are not required to provide but often do anyway, based upon the potential harmful effect on property values and sales that a refusal to disclose could have. 

     As a result of new Fannie Mae guidelines, lenders are now requesting responses to condominium questionnaires, with the most common likely being the Condominium Project Questionnaire Addendum to Fannie Mae Form 1076/Freddie Mac Form 476 (the “Questionnaire”). The Questionnaire largely asks an association to essentially interpret and provide a determination as to the structural integrity of the association property. However, boards and property managers are not qualified to provide such an opinion and are therefore put in a difficult position. To avoid this, an association can work with their structural engineer, who is likely in the best position to respond to the structural questions raised in the Questionnaire, to prepare updated standard responses, subject to disclaimers, and to provide engineering reports upon request by lenders in lieu of overly simplistic responses to the questionnaire. This type of “structural information package” could contain copies of all engineering reports and/or maintenance records, and which can speak for themselves as to the structural soundness of the condominium building(s). This method provides information regarding structural soundness without requiring the board members to interpret reports or records and make a determination as to what is or is not a “deficiency,” as requested in the Questionnaire. 

     Since this type of information goes beyond mandatory information that must be disclosed in a typical estoppel and is not required to be filled out by statute, Section 718.111 (12) (e)(1), Florida Statutes, allows the association to charge the requesting party (a) up to a $150.00 administrative fee for the association to respond; and (b) the legal fees incurred to respond—such as time spent by the association’s attorney to assist the association in responding, which would otherwise be billed to the association as a common expense. Associations can therefore adopt and implement a policy to collect such fees as a condition for responding. Pursuant to Section 718.111 (12)(e)(2), Florida Statutes, the association and/or the preparer of a disclosure can limit their liability exposure for good faith statements by including a written statement in substantially the following form: “The responses herein are made in good faith and to the best of my ability as to their accuracy.” 

     In summary, in relation to unit sales and loans, condominium associations must provide in a timely manner estoppel certificates, must retain and make available the applicable documents required to be disclosed by sellers, and should formulate a policy regarding lender questionnaires, which may include a structural information package to address any lender questions involving the structural integrity of condominium buildings. An association’s policies should similarly establish mandatory disclosures by management in estoppels under various scenarios to ensure that pending special assessments, projects, loans, and major anticipated expenses do not go undisclosed.

Jonathan Goldstein
Partner & Co-Chair, Haber Law

Justin Smith
Senior Associate, Haber Law

     Jonathan Goldstein is partner and co-chair of the condominium and HOA practice group for Haber Law, and Justin Smith is a senior associate at Haber Law. Haber Law is a 25-attorney boutique law firm based in Miami, Florida, that has the following four core practice groups: complex business litigation; construction law, including design and construction defects litigation; real estate, finance, and transactional law; and condominium association and HOA law. Additional practice areas include aviation law, bankruptcy and creditors’ rights, and family law. The Firm is committed to its core values of integrity, service, dedication, innovation, diversity, and success.