Responsibility for all living expenses, including utilities, fall upon homeowners, even when they stop making house payments. This means that homeowners who default on their mortgage loan must still pay their bills even if the bank starts foreclosure proceedings. Legal responsibility for the property's expenses only ends once the lender takes full legal possession of your home through foreclosure or an auction sale. This may take place many months after your loan first falls into default.
A Lengthy Process
Depending on your lender's policies and state law, foreclosure can take six months or more. The period between the notice of mortgage default and the auction sale or transfer of your home back to the lender, is known as pre-foreclosure. During this time, you remain the legal owner of the property and must pay for the services you use. If you're having trouble paying your bills, contact the utility company and request information about available payment assistance options.
Vacating the Property
Sometimes, homeowners vacate the property before a foreclosure sale. This scenario can present a legal gray area. A court in your state may decide that the lender assumes responsibility for the utilities from the day you move out of your home. In general, you must give the lender proper notice, or formally relinquish ownership to the lender, for this to happen. Courts in other areas might decide that you remain responsible for the utility bills so long as your name remains on the property deed. Consult a lawyer or a pro bono legal service in your area for advice.
Inspection During a Short Sale
In a short sale, you sell your home for less than you owe to avoid foreclosure, albeit under the supervision of the lender. While not the law, buyers may expect you, the home seller, to keep utilities in service during the marketing and sale process. If you can't afford it, or move out before the short sale closes, you may shut off the utilities. You can still do a short sale, however, you should notify buyers and let them know that the responsibility for turning on utilities falls upon them, even before entering into a contract.
Beware the Effects of Winter
Shutting off your utilities in winter may cause water to freeze in the pipes of an unheated property, which can cause pipes to burst and damage the home. To avoid cold-related problems, winterize your home before moving out by draining the property's water, emptying tanks and treating the plumbing systems with antifreeze. If you fail to winterize a home that is in foreclosure, it can hurt your ability to do a short sale, and consequently, may cost you money to repair.
After the Foreclosure Sale
You're off the hook the moment your property sells at auction. The new owner, who may be the lender, becomes responsible for any past-due utilities and liens on the home. Call your utility company and discontinue your utilities. Tell them your home has been foreclosed. The utility provider makes arrangements with the lender to turn utilities on for future buyers.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.