It seems a new trend is emerging in the real estate investment industry. This new trend is costing new real estate investors plenty for past due bills of former property owners and tenants. Utility companies and County agencies are sending bills without checking ownership or other records, perhaps with the hopes that new owners will pay up with no questions asked. This would instantly produce additional revenues.
I recently witnessed two instances of this new trend. One client received a city bill for "rental housing license and refuse collection fees for rental properties." My other client owned a property for almost a year and the tenant's lease ended. She called to turn on the utilities for the city inspection, only to learn there was an outstanding bill for the water and electric.
You may ask what is the big deal? Well my first client was sent for "rental housing license and refuse collection fees for rental properties," with an invoice date of January 3, 2006. My client purchased the property as an investment property in September 2006, almost eight months after the invoice date.
My other client called to turn on the water and electric, only to learn there was an outstanding bill for both utilities.
In the case of the water the outstanding bill was approximately $2,000. The electric bill had a balance of approximately $900. The water bill was attached to the property and now the responsibility of my client and not the former tenant. The electric bill went unpaid by the former tenant and the electric company transferred the bill to the property owner.
To date, I am still working with my client to resolve the transfer of the outstanding electric bill and to provide documentation for the outstanding water bill.
When you purchase a new investment property, the settlement company or settlement Attorney performs a title search to determine that the seller owns the property and has a free and clear title. A free and clear title has no clouds on the property. In other words, no person or business other than the seller has an interest or claim to the property, this also includes any liens.
Once the title search is completed, there is a deed issued when a property is purchased by a new owner. These deeds and laws vary from state to state and commonwealths. Contact a qualified settlement company or settlement Attorney with any questions regarding the types of deeds for your state or commonwealth.
The following is a list of suggestions to assist you with resolving any past due bills by former property owners or tenants.
• Have all the major utilities (gas, water, electricity) turned on by the settlement date. This will allow you to know if there are any past due bills created by the past property owner or tenant. If you are not able to postpone the settlement, you may request that the settlement company or settlement Attorney withhold money in escrow. The money placed in escrow should be enough to cover the outstanding bill(s) and any other fees that may be charged.
• If you are purchasing an investment property that has an existing tenant and the utilities will remain in his/her name. Write a letter addressing all of the utility companies stating that the current tenant is responsible for the utilities. Have the tenant sign and along with your signature. Make sure that you have the letter notarized just in case there is a future dispute.
• Create a closing package that includes your HUD-1 statement, a copy of the any deeds, the contact information of the settlement company or settlement Attorney and your Realtor. This will allow you to access the information to quickly to resolve any issues.
• If you have a dispute for an outstanding bill that is not yours, I suggest that before you call or make an in person visit, write a letter to the utility company, County agency, settlement company or settlement Attorney. Be sure to include any supporting documentation, as well as, any documentation that was sent to you. When you send your letter(s), keep a copy for your records and send it registered mail with a return receipt, not via UPS or Fed-EX or regular mail.
Whether you own one or dozens of investment properties, these suggestions can assist you with protecting your privacy and wealth. Do not allow the past bills of former property owners and tenants cause you to spend your time or money.
For more information or assistance with setting up a real estate investment team (REIT), mortgage planning options or property management, contact Jennifer Johnson, your trusted real estate investment advisor.
Copyright© 2007 by Jennifer V-E Johnson. Others may not copy this material without written permission of Jennifer V-E Johnson. The views expressed in this RE News are those of the author(s). If you are currently working with a Realtor® this is not intended as a solicitation.
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I know this amount sounds amazing but it happens all the time. It is important for Landlords or the Property Management company to stay on top of any utility that can effect the property. I have another client that has a lien but the utility company said they would not charge the homeowner if he could produce the lease showing that a tenant had occupied the property while the utility was on. It is important to make sure that no tenant can turn on any utility in the Landlord's name as well. A good way to protect your credit is using a product such as LifeLock - www.lifelock.com.