When Delinquent Utility Bills Interfere with Selling a Home

A delinquent utility bill is less of a problem when the seller has equity than when a seller has an underwater home. That's because a seller with equity might receive enough money at closing to pay outstanding utility bills. There is no profit for a short sale seller.

If a bill becomes a lien and is attached to the home, it typically must be paid at closing. Otherwise, it would affect the new buyer, and the buyer might not be willing to close under those circumstances. Moreover, a title insurance policy would except that lien from coverage, providing the title company was even willing to issue coverage.

It is important to note that in a non-GSE HAFA short sale, the federal guidelines do allow payment of a utility bill from the seller's relocation incentive, subject to a certain dollar maximum. However, the guidelines do not authorize payment of a lien. That's where you can get caught between a rock and a hard place. If the utility bill is recorded against the property and becomes a lien, that's a huge problem for some sellers of a short sale. Especially a short sale seller without enough money to pay the utility bill.

Why Utilities Need to Stay On During Home Selling

Sometimes, sellers don't think about the utilities or the buyer when they are getting ready to move. They of course will make sure to begin service at their new home, but are sometimes so distracted and overwhelmed with the moving process they don't realize that turning off the utilities at their existing home could carry consequences.

Here are some reasons to keep the utilities connected in a vacant home:

• Showing the home. If the home is still on the market for sale, utilities are very important. Heat and AC maintain the interior comfort for home buyers. If it's too hot or too cold inside the house, a buyer might not even make it to the third bedroom. A buyer might spin on her heels and walk out.

• Maintaining integrity of the home. Twice in the last several years, water pipes have exploded during December freezes in Sacramento and flooded vacant homes. The pipes burst because the heat was turned off -- standing water inside the pipes froze, expanded and broke the pipes. Homes need to breathe, hardwood floors can be damaged in extreme heat or cold temperatures.

• Providing security. Some homeowners install a timer on a light fixture or lamp to automatically turn on and off at certain hours at night. A little light can make a home appear occupied. It's also a good idea to leave a porch light on at night. It discourages break-in attempts.

• Buyer's appraiser. If the buyer is obtaining financing, that lender will hire an appraiser. The appraiser will perform certain tests that can only be performed if the utilities are working. If the utilities are not connected, many appraisers will not complete the appraisal until the utilities are turned back on. If the buyer's appraiser cannot finish the appraisal, the buyer will not get the loan and cannot close.

• Buyer's home inspection. Most buyers want to do their due diligence, which includes a home inspection. A home inspector cannot check receptacles nor test water pressure nor ensure a gas stove is working properly without utilities.

• Buyer's final walk through. Many purchase contracts provide for a final walk through. This means the buyer verifies the home is in the same condition as it was when the buyer first viewed it. If the utilities have been turned off, the buyer cannot obtain this verification.

  Buyers and buyer's agents can help to reduce utility costs for the seller between the time the purchase contract is ratified and prior to closing by:

  • Turning off lights when leaving
  • Monitoring the thermostat
  • Closing drapes and / or blinds