Ask Erin: What happens to unpaid utility bills on bank owned REO properties in Sacramento?

With so many REO properties on the market for sale in the greater Sacramento area, I feel it is my moral obligation to warn buyers about the ramifications and potential consequences of previously unpaid utility bills.

When a property owner goes into default, along with not making the monthly mortgage payment, many owners stop paying their property taxes, and they also stop paying their utilities - like their water, gas, and electric bills.

When property taxes go unpaid, the county that collects the property taxes will record a lien against the property. When a title company later does a title search to see if there are any liens or other encumbrances, property tax liens pop up and are detailed on the preliminary title report. Easy. It's out there for all to see. Title to the new owner will not be transferred until these liens are paid - usually cleared by the selling entity / bank.

When utilities go unpaid, sometimes liens are recorded. More often, unfortunately, liens are not recorded. This means that unpaid balanaces to the local water district, power company, or gas provider will not show up as liens on the preliminary title report.

What does this mean to a buyer of a foreclosure property?

It means that if you do not take the time to investigate the status of the utility billing to determine if there is a past due amount, and there is a balance due by a previous owner (or even the previous bank owner) - once you take ownership of your new house the utility company may refuse you service until the amount is PAID IN FULL, or they may attempt to collect the entire past due amount FROM YOU.

Buyers - be SURE to investigate this during your escrow. Call the local water district, call the local power company, call the local gas company. Make sure that the bank owner is current on these bills. You will have to call these utility companies anyway to set up your service. If there is a past due balance, be sure to submit documentation to the bank seller prior to the end of the transaction - this way you can be sure the bank seller pays these bills current. Be sure to have your agent ask to see the seller's settlement statement prior to the close of escrow so that paying off these invoices does not get overlooked. After the close of escrow, if a utility company denies you service or bills YOU for this unpaid debt, it is likely you will have no real recourse with the former seller.

Ever stop to wonder what a water bill amounts to if unpaid for 11 months? What about SMUD or PG&E. It can be in the hundreds of dollars. Unfortunately logic does not rule here. Logically speaking, a buyer should be able to provide documentation as to when the transfer of ownership occured, and that should satisfy the utility company to turn service on, or try to collect the unpaid amount from someone else. This is not the case. These companies want to collect - and will do so at your expense. Several agents in my office have learned this lesson the hard way - don't let it happen to you...