Estoppel Certificate vs. Reduction Certificate

The estoppel certificate (also called a certificate of no defense) is issued by the mortgagor to establish the amount of the debt and whether any defenses exist, whereas the reduction certificate is issued by the lender to someone who is about to assume the loan and states the remaining loan balance.

Estoppel Certificate — A legal instrument executed by a mortgagor setting forth the exact unpaid balance of a mortgage, the current rate of interest and the date to which interest has been paid. It further states that the mortgagor has no defenses or offsets against the mortgagee at the time of the execution of the certificate. Once the mortgagor has executed a certificate of no defense, the mortgagor cannot thereafter claim that he or she did not owe the amount indicated in the certificate.

Also called a certificate of no defense, the estoppel certificate is most frequently used when the mortgagee is selling the mortgage to a third party and the purchaser wants to be assured of the amount and terms of the mortgage and that the mortgagor acknowledges the full amount of the debt. Most mortgage documents contain a clause obligating the mortgagor to execute a certificate of no defense upon written notice from the mortgagee.

Reduction Certificate — An instrument that shows the current amount of the unpaid balance of a mortgage, the rate of interest, and the date of maturity. A reduction certificate is normally required from a mortgagee when a prospective purchaser is to assume or to take title subject to an existing mortgage. The mortgagee, then, cannot later claim that the mortgage amount or terms were different from those stated in the certificate.

A reduction certificate is similar to a certificate of no defense except that it is executed by the mortgagee. The reduction certificate is useful because only the original amount of the loan is a matter of public record. Any reduction of principal is known only between the parties. The instrument is usually acknowledged, but need not be recorded. It is also called a statement of condition from the lender, or a beneficiary statement in a deed of trust situation.