Who’s liable for unpaid water bills, the home seller or home buyer? When the city bills you for back charges after installing a water meter, liability becomes confusing.
Q: I own a rental home in Baltimore. The city has had issues in handling water bills and has even failed to install water meters on many properties. I purchased a property from the city, fixed it up and rented it out. The water meter in the home had been removed.
I did receive bills from the city and recently noticed that the bill was for sewage and waste. When I discovered this I notified the city. After many conversations, the city installed a water meter without any back charges. I entered a contract for the sale of the home to a buyer that wants me to indemnify them and hold in escrow a sizable sum in case the city goes after the new buyer for unpaid water charges. This buyer would be an independent successor in ownership. Could the new buyer have any liability?
Who’s Liable For Unpaid Water Bills When the City Bills Your For Back Charges?
A: Thanks for your question. More cities and municipalities are looking for any sources of revenue these days. So it’s quite possible that your buyer could get hit up by the city water department for unpaid water bills and charges prior to the buyer’s ownership of the property.
We can’t go into the many ways that water departments bill for water and the responsibility and liability a new homeowner can have for water bills incurred by a prior owner, but there are a number of ways this can play out, some of them unfavorably for the new owner.
As an example, however, some water departments will issue a full payment certificate at or close to the time of a sale to show that the water department for the city doesn’t have any outstanding bills against a property. If Baltimore issues a letter that shows the buyer that all charges owed to the city are paid in full, we’d think that should suffice to reassure your buyer.
On the other hand, some municipalities bill out their water charges similar to other utility companies and the utility obligation is personal to the homeowner that consumed the water. Just like with the electric company, if you fail to pay your electric bill, the electric company will go after the account holder and not the homeowner.
Will the Home Seller or Home Buyer be Liable for Unpaid Water Bills?
We assume that Baltimore must place the responsibility on the homeowner to pay the water bill and if that homeowner sells the home without paying the water bill, the next homeowner will be on the hook for any unpaid charges.
It makes sense but you should contact the water department to see if you can get any documentation showing that your account is fully paid up as of the date of closing. With that letter (or other documentation), we’d hope that your buyer would accept it and move on without the indemnification and holdback escrow.
That’s what the buying is asking for, by the way: indemnification. The buyer wants you to retain the responsibility to pay any charges to the city post-closing and to have a legal responsibility to clear any issue that comes up relating to the water. Not only that, but the buyer wants you to put a hefty amount of money aside to secure that obligation.
On the one hand, we hope that you can get some documentation from the city to help you out and give the buyer some comfort on this issue. We know, however, that some governmental agencies will never give out documentation that they don’t do in the normal course of business. If you can get the documentation, great. If you can’t, you have to decide whether it’s more important for you to sell the home at any cost or to wait for the next buyer.
The other option is to limit the indemnification to the first couple of months following the closing and reduce the amount of money the buyers wants to hold back. You should talk to a real estate attorney further on your options and choices. Perhaps your attorney may have a different idea on how to approach the city and get documentation that would make the buyer happy. Good luck.