Home Buying in Sacramento>Question Details

Schi, Home Buyer in Sacramento, CA

Should I worry about the electric bills, water bills, property tax, etc. from previous owners when buying from a short sale?

Asked by Schi, Sacramento, CA Fri Sep 18, 2009

the listing agent likes my offer that I submitted for the short sale, what should i be aware of?

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Absolutely!

The bottom line is if the seller didn't pay them (and to be honest with you, most of the time they go UNPAID), this could now be what is standing between you owning that home and the house going to the next buyer who is willing to pay them.

If left unpaid, they show up as liens against the property. Some short sale lenders in the past have paid these liens but now we are finding that is not the case and the buyer s often left holding the bag because a seller has left hundreds and sometimes thousands of dollars left of unpaid utility bills.

The lenders have the option of which liens they will and will not pay. Make sure that the agent representing the seller orders all liens against the property early, midway, and again at the end. Be prepared for the unexpected and if i doesn't happen then great, but if it does appear, you were prepared.

Decide early how much in additional funds of your own money, as a buyer, that you are willing to contribute to this sale if it should get to that point. We are talking about money "on top of" your offer price. You don't have to put it all out on the table up front, just know in the back of your mind what your willing to do and be prepared.
3 votes Thank Flag Link Fri Sep 18, 2009
Schi

Your head is probably spinning right about now, lol. Real estate differs across the country and from state to state. If you are in Sacramento, it's best to take the advice of a trusted REALTOR from the Sacramento region.

I'm sure all of the agents on this feed are experienced, and in general terms we all are in agreement, YES, you should be concerned about outstanding bills against a short sale property and we have all graciously contributed to various ways you can protect/prepare yourself. :)

Have a great week!
2 votes Thank Flag Link Thu Sep 24, 2009
Utility bills do not transfer with a house. I do not know about CA, but in MI a water bill can be attached to the house, as can property taxes. They are typically included in the charges that the lender is asked to cover, not the buyer.
2 votes Thank Flag Link Fri Sep 18, 2009
Maureen Fran…, Real Estate Pro in Birmingham, MI
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Regarding a utility company not refusing service because of the owner's outstanding bills - it just happened on a recent bill. Seems that they had been turned off for non payment and the owners turned them back on themselves and messed with the meter. the utility company froze the account and would not turn utilities on till account was cleared up. They wanted a copy of the new owners title showing that they had purchased it but we hadn't even closed yet. it took forever to get a waiver and get utilities on and make sure the bills were not our resonsibility. NEVER assume anything! have someone look into every aspect for you. it will do you NO good to find out bad news after closing and say 'well, I read on Truilia that this wouldn't happen'.
1 vote Thank Flag Link Sat Sep 26, 2009
Escrow companies from southern California and out of state are especially dangerous about not paying the bills current. Local escrow companies are more reliable because they are hoping for repeat, future business.

If they are in So Cal they could not care less about buyers. They are chosen by the banks and have loyalty only to the bank and not at all to the buyers.

This is despite an ethical and legal requirement for escrow companies to be neutral parties.
1 vote Thank Flag Link Thu Sep 24, 2009
Jim Walker, Real Estate Pro in Carmichael, CA
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Looks like it is a little different across the country but note that every Agent agrees that property taxes can be lien on the property and that the lender 'usually' pays the property taxes through the day of closing.
On the water bill issue, In Columbus, Ohio and Franklin County the water bill can be attached to the property as a lien. More specifically, however and something no one here mentioned, the Sewage portion of the water bill will become the new home owners responsibility, not the entire water bill.

Also know that, again in Central Ohio, title companies rarely check for outstanding water or any other utilities so it's up to you to make sure they're all paid up.
1 vote Thank Flag Link Thu Sep 24, 2009
Hello Schi. It appears that there are different experiences among the agents here as far as past due utilities are concerned. While I have had a client call after the close of escrow asking me to send a copy of the purchase agreement & the final closing statement to SMUD & the water company, I have never had a utilities company refuse service to the buyer because of unpaid outstanding bills for which the prior owner was responsible. Let's face it, not having water, electricity and/or gas renders that property essentially not habitable & the utilities companies don't want that. You really have to distinguish between secured & unsecured delinquent accounts. If the past due balances have been rolled over to the tax roll, the unpaid amounts become part of the tax bill & attach to the property & it does not matter that it was the prior owner who accrued the past due amounts. The utility companies do not collect payments that have already been rolled over to the tax roll. You as the new owner would be responsible for any unpaid utilities liens & that's why it's important to investigate this to make sure they get paid at close of escrow.
Unsecured utilities are a different story. The utilities companies should not refuse service to the new owner when the new owner can show the change of ownership. They may not establish new service in the new owner's name without proof of the change of ownership. If you do run into a problem, ask for a supervisor & ask them for a written rule that allows them to refuse service. Utility companies have rules and regulations and they can't just refuse service because they feel like it.
If you had an account with the utilities company before at a different address & you had past due payments there, the utilities company may require a deposit as a condition of establishing service at the new address. If that's the case, the deposit requirement is not because of the prior owner's past due payments, but because of your own payment history with that utilities company.
This may all sound a bit confusing, but it's really not that difficult. It takes a few extra phone calls & make sure the listing agent knows about any outstanding utilities issues so that the listing agent can forward that to the escrow officer to make sure it appears in the HUD-1 that goes to the lender with the offer. Don't assume that the listing agent knows everything about the property and that the escrow officer who will prepare the HUD-1 will put all the necessary items on the HUD-1. It's also possible that new things will surface while you are waiting for the lender approval. Study the prelim carefully and make sure it shows all liens that you think should be in the prelim (you will probably not receive a prelim until the approval has been issued, but some title companies will prepare it and it will be included with the short sale package, depending on the lender requirements for short ). You don't want to receive an approval and then find out that the lender never knew about a lien because it was not listed in the HUD-1. Frankly, I don't think it would be unreasonable for a buyer to request a copy of the HUD-1 that was sent to the lender together with the offer. I have had cases where I received a short sale approval letter from the listing agent and I had to figure out myself what was actually approved and found out that we were over $2,000 short. The listing agents never bothered to compare the approval letter and the HUD-1 and had no idea that there was not enough money to pay for everything the contract called for. In those kind of situations, the escrow officer is your friend as they will strive to reconcile the HUD-1 and approval letter. Had I not requested a copy of the HUD-1, I would not have been able to discover we were short as I would not have had anything to which I could have compared the approval letter. When I receive the short sale approval letter, I ask the sellers to sign it indicating that they read and approved it and I go over it and compare it to the HUD-1 to make sure there are no inconsistencies. I don't want my buyer to go into escrow and spend money on inspections thinking that everything is alright, when it is not. If there are inconsistencies, the buyer should know before spending money on inspections & an appraisal and not find out at the last minute that we are short and more money is needed to close escrow. While receiving a short sale approval is exciting, the work is not done until all the numbers add up. Many approval letters will require further negotiations and if an agreement cannot be reached, the seller essentially fails to provide a short sale approval as specified in the short sale addendum. The devil is in the detail.
Web Reference: http://www.themlshub.com
1 vote Thank Flag Link Sat Sep 19, 2009
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Hi Schi--there is a standard provision in the Residential Purchase Agreement (Par. 18) that calls for pro-ration as of the day of closing for property taxes--meaning seller (the short sale lender(s) will bring taxes up to date as of the day of closing). If the electrical company is SMUD, they won't go after you for electric. Water is another story. The water company will expect you as the buyer to pay any past due water bills.

Do you have a provision in the sales contract that Seller pays all outstanding utility bills? If not, I would recommend an addendum. The addendum would also weaken your position in the eyes of the short sale lender. So, ask your Realtor what they think is best for you and you chances of getting the home.

I hope this helps.
Web Reference: http://SoldByErin.net
1 vote Thank Flag Link Sat Sep 19, 2009
@ Cindi Hagley, not sure how you do it in San Ramon, but that's not how it works in Sacramento County. I don't even think there is a difference based on what county or state for that matter. EVERYTHING is negotiable when it comes to closing a short sale. Sometime it even depends on how the negotiator is feeling that day. LOL.

In this era of short sales, unfortunately, there are no set standards, processes that are consistent. What the bank is payng for one day can and often does change monthly. I must say that the only thing I've seen them consistently pay has been, and I hope will continue to be, outstanding property taxes and buyers credit on FHA loans.

Bottom line, seller's lender is now negotiating everything, including utilities.
1 vote Thank Flag Link Fri Sep 18, 2009
I see I did not answer your question about the utility bills, I got so caught up in answering what you should be aware of going into a short sale.

Water liens can be filed against the property. Other utility bills such as electrical or gas are not. However, if the water company files a lien against the property, it must be paid off before title will record. This means if the seller doesn't have the money, you will probably have to pay it.

As far as the electrical and gas utilities, if the seller did not pay the bill, the utility companies may refuse service to you until those past due bills are paid. You will receive the phone numbers of the utility companies in your preliminary title report, and you may want to make sure they are paid, but generally title will check on this for you as well.
1 vote Thank Flag Link Fri Sep 18, 2009
Hello Schi. Neither electric bills not water bills of the seller are your responsibility if they are not paid. However, unpaid taxes are a lien on the property and many times, delinquent utilities will be added to the tax bill. They'll be listed under special assessments. You can lookup the tax bill info and delinquent taxes for any property in Sacramento. In a short sale transaction, the lender will pay for all the outstanding property taxes at the close of escrow by reducing the amount of the proceeds. The escrow officer will get a demand from the tax collector's office and put it on the HUD-1 that is submitted to the lender with the short sale package. Escrow officers will rather over estimate to make sure there will be enough money to pay all the expenses at the close of escrow. If there's money left over, the lender will get the overage.

It is a good idea to do your own due diligence search and ask questions of the escrow officer to make sure nothing was missed. I routinely call the utility companies and ask about past due charges and alert the escrow agent as it has happened to me many years ago that a lien for delinquent utilities appeared on the buyer's first tax bill as it was missed by the escrow officer and not paid at the close of escrow. Luckily, the former owner agreed to pay. The escrow company did not offer to pay.

You'll need the assessor's parcel number to look up the tax bill info. Below is the link to the Sacramento tax collector's website. If you don't know the APN #, you can look it up by address on the tax assessor's website. http://www.assessor.saccounty.net/AssessorsParcelViewerAppli…

I hope this helps.

Ute Ferdig
DRE # 01326917
Ferdig Real Estate Solutions
1 vote Thank Flag Link Fri Sep 18, 2009
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Oh, where to start. Apart from the fact the seller needs to qualify for the short sale and may not -- there are other factors to consider such as whether your sales price is high enough to satisfy the short sale lender to whether the seller has two loans to whether any of those loans were hard money and, of course, whether the listing agent has experience in short sales.

If the existing loan originated with Countrywide, lord help you.

If you signed a short sale addendum, you have given the seller the right to continue marketing the home, accepting higher offers and sending those offers to the bank, which could knock you out of the ballpark.

As for the utilities, assuming the title and escrow is located in Sacramento, they will find out if there is a lien for the water. There may also be liens for the HOA, and many lenders will not pay those types of liens. If the seller has no money for those liens, then it's up to you to pay them off.

Welcome to the wonderful world of short sales!
1 vote Thank Flag Link Fri Sep 18, 2009
Texas, a property owner gets foreclosed on by a bank, the bank calls to have water placed in its name, water utility - a city- says bank must pay water bill usuage from the time they have foreclosed even though the previous owner still occupies the house ( takes time to evict). they file a lien on property, however if bank had requested that water be turned off city says they would not, crazy,, they also collect from landlord of tenant does not pay, i think they are getting away with this until they cannot anymore, email me if you have any ideas, rhardyus@yahoo.com
0 votes Thank Flag Link Fri Oct 26, 2012
My Dad pass away 2 years ago, with a 50,000 morage on his house in Mi. The house was left to me and my brother, my brother does not want the house, but he doesent want me to have it also. My brother has ran up the bills on the house with the lawyers who now have a lean agenst the house. If the house goes into forcloser, do theos lawyers get paid?
0 votes Thank Flag Link Thu Dec 17, 2009
As a listing agent for short sales over the last 3 years, I can tell you that not all title compaines are sending in the escrow demands to the water and garbage companies for the unpaid fees attached to the property,
(utilities are not attached to the land as is water, sewer and garbage).
I remind my title rep to help me insure that is done. I suggest that you as the buyer request in writing email is fine- that your title rep send the demands to the water,sewer,and garbage companies and clear the HOA fees, if applicable, as well. I know from experience with HOA fees, I as the listing agent had to pay , in advance on my credit card , for them to release the transfer fees to the escrow officer.

So as others have said its the title rep that can clear the debts. Of course talk to your realtor, so they can raise a stink if needed with the out of town escrow companies. Also want to call the water companies and electric companies yourself and find out if you can turn them on for inspections. I as listing agent have turned them on in my name for a short time to close the deal. Good looking out
0 votes Thank Flag Link Sat Sep 26, 2009
Hello Lori. I don't think anybody suggested that the utility company would not refuse to turn on the utilities prior to closing. If the current owner is behind with their bill and escrow has not yet closed, the buyer really has no standing to ask the utilities companies for the utilities to be turned on. It definitely has to go through whomever the owner of record is no matter how close you are to closing. In CA, the standard purchase agreement provides that the seller keep the utilities on through closing, which can of course pose a problem when the seller does not have the money to do what needs to be done to get them turned back on. The buyer does not want to front money, but can't really do all inspections without utilities. No question, these type of situations, no matter whose responsibility the outstanding bills are, can cause practical problems even before the close of escrow.
Web Reference: http://www.themlshub.com
0 votes Thank Flag Link Sat Sep 26, 2009
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
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Any lien against the property will be paid by the seller's lender or the seller before the title is transferred to you.
0 votes Thank Flag Link Fri Sep 18, 2009
What about the case where the Title Company (escrow agency) didn't catch a bill that was owed by the previous owner? It's now 18 months after the purchase and I just received a bill for nearly $1,000 from the local sewer company which was for services due prior to my purchase. Is the escrow company liable for not finding this bill and alerting me prior to purchase?
Flag Wed Nov 14, 2012
Cindi Hagley, Real Estate Pro in San Ramon, CA
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