Prior to purchasing a seller financed note, the investor might ask for a payer estoppel. This simple one page letter or document is sent to the person making payments on the note, mortgage, deed of trust, or real estate contract.
The estoppel explains the investor is contemplating the purchase of the note, reassuring the payer that all terms and conditions will remain the same. It then summarizes the information on the note including current balance, interest rate, terms of repayment, and contact information for the payer.
In addition to confirming information, it also provides the payer an opportunity to validate or dispute the details provided by the seller. This can be particularly important when there is no third party outside servicing company collecting payments and keeping track of the balance.
The estoppel, also known as the vendee verification, is usually sent to the payer by certified mail or some other method of delivery confirmation. Most investors mail once the title and property value have been reviewed and the transaction is near closing. It might also be performed with a payer interview or verbal debt verification.
I was in real estate sales and then mortgage lending for a number of years. I’d heard of estoppel certificates but I was never entirely clear about its meaning. Is the payer (borrower) estoppel synonymous with an estoppell certificate ? Or is it that when the borrower provides written confirmation as to the note basics and it is notarized and/or conveyed through a third party ?
Hello Margery,
In the note business an investor will often request a payer estoppel to verify the terms of the note. This helps to preclude the possibility of a claim that the actual unpaid balance or applicable interest rate is different. This is especially important when the seller is collecting the payments directly without the services of a third party servicing agent. In this case the note investor would be the third party requesting the written confirmation as the the terms of the note between the payer and note holder/seller.
An estoppel certificate can be used for other purposes too. For example, a landlord might request a tenant estoppel when a transaction involves rental property to meet due diligence requirements of a third party.
An attorney can help determine the most approriate esttopel certificate for the situation. In the training we provide a sample of the document often used in the note business. Here are a couple of helpful links on the topic of estoppels in general:
http://www.businessdictionary.com/definition/estoppel-certificate.html#ixzz3Irs8wSQE
http://www.theleasinglawyer.com/estoppel.html
https://www.redfin.com/definition/estoppel-certificate