Outstanding Utility Bills: Prevent a Shock at Closing!

 

As a real estate professional, you already know why it is so important to order a municipal lien search. Municipal lien searches reveal title issues such as open permits, code enforcement violations, or unpaid utility bills, which can derail a smooth closing. But what happens when that municipal lien search actually does turn up an unpaid utility bill and causes a shock to your Seller?

There are a few easy ways to resolve an unpaid utility bill so that it does not impact closing:

• The Seller can pay the bill and send proof of payment to the closing agent.
• The outstanding balance can be added to the settlement statement as a debit to the Seller.

Both these options are fairly straightforward and should not cause any delay in closing.

Either way, Sellers are obligated to pay outstanding utility bills to transfer clear title. So, in order to clear that exception and get clear title, a clean municipal lien search is needed, and that includes unpaid utility bills.

Title policies often provide the following exception: “Any lien provided by County Ordinance or by Chapter 159, F.S., in favor of any city, town, village or port authority, for unpaid service charges for services by any water systems, sewer systems or gas systems serving the land described herein; and any lien for waste fees in favor of any county or municipality.”

What if the Seller always makes their utility payments on time and an unpaid bill still shows up and causes a problem? The unpaid utility bill could be from a prior owner or tenant and, in that case, the Seller may have a claim against their prior title insurance. And this is not always a small amount. One example is when a lien search turned up over $1,500 in unpaid utility charges from a prior owner. These charges were not discovered because a prior closing agent did not obtain a lien search and, unfortunately, the Seller was required to pay those outstanding charges. Safe to say those Parties will never overlook a lien search again!

To protect the Parties from the possibility of unpaid utility bills becoming a lien on the property, and disrupting closing, you want to encourage the Parties to resolve these issues prior to closing by taking some simple, but important steps:

• Ensure that a lien search is timely ordered;
• Closely review the search results; and
• Should issues arise, do not delay in addressing the same with the Seller.

Keep in mind that Chapter 159, F.S. allows municipalities to place a lien against a property for unpaid utility bills at any time. This means that even if the county has sent a letter stating that they aren’t currently liening for unpaid utilities, that letter does not override the county’s statutory right to do so in the future. So while a $200 outstanding utility balance may not seem like a big issue at the time, you don’t want that bill to become a lien on the property that the Buyer has to resolve when they go to sell the property.

As always, should you have any questions about the municipal lien search or how to resolve any potential title issues that may impact closing, please reach out to your trusted real estate attorney.

Sincerely,

Jill Bowen, Esq. jbowen@berlinpatten.com
Berlin Patten Ebling, PLLC

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

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