Not only is "estopple" fun to say, but the estopple certificate is one of the buyer's best friends when making a real estate investment purchase.

The theory is this: Sometimes a seller does not disclose everything to a buyer... or even to his broker for that matter. The estopple certificate is the process through which a buyer learns about any financial dealings that the seller may have with his tenants.

For instance, the seller tells you that Unit D pays $850 per month. However, he neglects to tell you that he credits the tenants $200 per month for maintenance work or that the $800 security deposit was actually reduced to $400 or that the tenants are breaking their lease and moving on Thursday because the Seller agreed last month to fix the shower and they are still taking baths in the sink or that the tenants - who signed the lease - moved five months ago and his cousin Vito and his four teenagers (plus the dog, Plague; the python, Smiley; and a pregnant rat, Lucita) are now the occupants.

Below is a copy of a typical estopple certificate. Let's take a look at each of the provisions.

1. This paragraph establishes their term of the lease.
2. The rent is set forth here.
3. The tenant agrees that the Landlord has done everything he agreed to in accordance with the lease.
4. No modifications have been made to the original lease.
5. In this paragraph, the tenant declares that the lease is binding and that they have no objections to it.
6. The tenant discloses his agreement as to the amount of the security deposit.
7. This item satisfies all questions regarding any rents that the tenant may have made in advance.
8. The tenant states that he has no knowledge of an assignment of rents or any similar proceeding, thus acknowledging that his rent check will be made to the new owner.

9. This all-important statement advises the buyer that there are no outstanding agreements between the tenant and the current owner of which the buyer is unaware.

The estopple certificate is the tenant's disclosure of all his dealings with the seller. A prudent buyer will not proceed to closing without having each tenant's signature on a document similar to the above.

For this reason, a purchase contract should include a clause stating that the buyer will provide the seller with estopple certificates, and the seller is required to deliver the executed certificates to the buyer prior to closing. -

MIKE HESSE, CCIM, CPM
Real Estate & Investment Specialist
DIRECT - 720.581.2222
online at www.MikeHesse.com
email Mike@MikeHesse.com