Waiver and Estoppel in Mortgage and Foreclosure Law: A Comprehensive Guide to Understanding Your Rights
Estoppel is a long-standing legal principle that prevents someone from being wronged unjustly by the actions or words of someone else. Found in many common law legal systems throughout the world — including in the United States, Canada and the UK — it essentially prevents someone from contradicting something that they did or said in the past.
Based in equity and common law, estoppel is also a concept that’s used in international law. Different forms of estoppel can vary greatly from one country to the next, though.
In the U.S., estoppel is often found in mortgage and foreclosure law, and ensures that one party lives up to what they say they’re going to do, or doesn’t do unfair damage to another party. It prevents someone, for instance, from saying they’re going to do something only to not do that in the future.
Below, we’ll discuss estoppel in more depth, including the main types as well as how it pertains to foreclosure cases.
Types of Estoppel
There are many forms of estoppel. Some of the most common ones include …
- Equitable estoppel: This involves a promise that one party makes to another, ensuring that they don’t do harm to another.
- Promissory estoppel: This involves a clear and definite promise made from one party to another. It’s found often in contract law, protecting a party from significant financial losses if the other party didn’t fulfill their promise.
- Collateral estoppel: This prevents one person from re-litigating an issue that the courts have already decided. It essentially prevents one party from abusing legal resources and engaging in legal harassment.
- Reliance-based estoppel: This focuses on the reliance of one party on an action or statement.
Other types of estoppel include estoppel by deed, estoppel by silence and estoppel by record.
Estoppel Certificates
Estoppel certificates are commonly used in real estate — both commercial and residential. These legally-binding documents confirm the obligations that a seller has to a buyer.
Many lenders and even some third-party entities will require estoppel certificates when a party wants to sell a property that has a tenant, or if the owner wants to refinance their loan. In many cases, the governing homeowners’ association (HOA) or condominium owners’ association will be the entity that issues this certificate.
The landlord is often the one that prepares the certificate, and it’s signed by the tenant or lessee. On the certificate will be listed any assessments, dues and fees that the new owner is responsible for taking over after the sale has been closed.
Other pieces of information commonly included on these certificates include the lease terms, a confirmation that the lease is currently up-to-date as well as a statement that verifies that there weren’t any modifications made to the lease itself — or a list of any changes that were made and when they were made.
Waiver and Estoppel: Key Differences
Waivers and estoppels are often confused for each other. While they each have a place in common law, they are very different from each other.
An estoppel typically results from actions that are involuntary. This judicial device prevents a party from making an inconsistent claim.
A waiver, by contrast, is a voluntary action that one party takes that results in them surrendering, repudiating and/or renouncing a right or claim they have.
In law, waivers are typically used to resolve disputes, therefore, while estoppels are used to prevent such disputes from arising in the first place.
Estoppel in Mortgage and Foreclosure Transactions
Estoppel certificates are commonly used in commercial real estate. The document is used to do many things, including preventing a tenant from challenging statements that landlords made in the past.
When a commercial property is sold, the buyer of the property relies on estoppel certificates so they can understand what the terms of a lease are. This will ensure that the new entity that’s purchasing the property is completely informed regarding all of the legal and financial standings of it before they finalize the transaction.
In addition, estoppel can be used to prevent a lender from asserting a claim that’s inconsistent with previous actions or statements it did or made. Similarly, they can be used to prevent borrowers from contradicting or denying that they took a previous action or made a previous statement.
Estoppel in Foreclosure Defense
In some cases, estoppel can be used as an affirmative defense in foreclosure proceedings. They can prevent lenders from asserting a claim that’s inconsistent with another claim they made in the past or action that they took.
It ultimately prevents a party from luring another into any legal position that would be termed disadvantageous to them.
In addition, estoppel can be used to prevent a borrower from being penalized unfairly if a lender made a mistake. If, for example, the lender made a statement or included a statement in a contract and then figured out later they made a mistake, they cannot unfairly penalize the borrower for that mistake.
Reliance and Estoppel
Like its name suggests, reliance-based estoppel focuses on the reliance of a party on an action or a statement. This form of estoppel is used often in cases where a person has relied on an action or statement from another party to their detriment.
This could include a situation where an individual asserts a set of factors to be the truth to someone else. In this case, the victim can use estoppel to show they’ve been harmed due to the incorrect statements that were made.
It’s used to prevent a party from contradicting a previous statement they made or action they took, or from denying that they did so.
Best Practices for Estoppel Certificates
There are a few best practices that you should follow for estoppel certificates.
First, ensure that you obtain the estoppel from the correct condominium owners’ association or HOA. These are the entities that should be responsible for issuing and holding the certificates.
Next, ensure that you review the estoppel certificate carefully, ensuring that it reflects the seller’s obligations accurately. It also must be signed and dated by all affected parties.
If anything seems off with the estoppel certificate, it could be null and void.
Estoppel in Litigation
Estoppel can be used in legal cases to prevent one party from making inconsistent claims. In other words, it’s used as evidence that can be used to defend a party who feels they have been wronged in a certain situation.
In addition, estoppel serves to prevent an issue from being re-litigated if a court has already ruled on the matter. This protects a party who, for instance, might be in a weaker financial and legal position than another — such as an individual tenant or buyer versus a large commercial real estate company.
Consumer Protection and Estoppel
Estoppel isn’t just used in commercial real estate and complicated legal contracts, though. It’s also used to protect consumers from deceptive or unfair practices on a number of levels.
In real estate, for example, estoppel can prevent a seller or lender from making assertions or claims that are inconsistent. It can be used against either of these parties if they try to contradict something they’ve said or done in the past, or try to deny that they did so.
In essence, it serves as great protection for everyday consumers.
Common Estoppel Mistakes
Some of the most common estoppel mistakes relate to the party from whom they were obtained and/or a failure to review what’s in them.
As mentioned above, if you don’t obtain the certificate from the correct condo owners’ association or HOA, you might be getting incorrect information and, as a result, an invalid document. If you don’t review the certificate to ensure the information is accurate, then you could be signing something that doesn’t give you the correct rights you deserve.
Understand Estoppel to Know Your Rights
Estoppel is a powerful tool that can be used to prevent parties from making assertions and claims that are inconsistent. It’s a principle of common law that can be applied to a variety of different contexts, from commercial real estate, to contract law, to even foreclosure defense.
Understanding the different types of estoppel and how you can use them to protect your rights is essential. Yet, gaining this understanding can be challenging, as it’s complex and hard to understand.
That’s why it’s always a good idea to consult with a trusted law firm that can educate you on everything there is to know about estoppel.
In Michigan, Babi Legal Group has more than 20 years of combined real estate experience, and more than 10 years of experience in business law, debt collection and settlement, bankruptcy and criminal law.
For more information, contact us today.
