Utility Payoff at Closing in Washington State

In the State of Washington, certain utility charges are an “implicit” (automatic) lien on the property where service is provided. Water and sewer services are typically covered by these laws, as is electric power when provided by a city or town¹. The law helps ensure that utility providers can collect amounts that are owed to them by tying the debt to the property itself and not just to a particular person or business.

Because utility charges are effectively a claim against a property, utilities must be paid when a property is sold. This keeps the transaction clean for the buyer and seller; nobody wants to be stuck with a bill for charges from the previous owner! But this is precisely what can happen if utilities are not paid at closing.

Washington State law also protects the rights of the other parties involved in the real estate transaction as well. This article provides an overview of the process as described in the law and practiced by most utility providers in Washington.

The Process Outlined in State Law

To support utility payoff at closing, the law provides a framework for agents to obtain and pay the final utility bill for the property. RCW 60.80 describes the normal procedure, which involves some coordination between the seller, the closing agent, and the utility provider.

If the buyer and seller want the utilities to be paid at closing — and they usually do! — then the closing agent is legally required to handle the payoff. The seller must inform the closing agent of the utilities that provide service to the property, though in practice most title and escrow companies will already know much of this information based on their title research. Title companies are motivated to ensure that all liens are discovered and paid at closing, since unpaid liens may lead to a title insurance claim.

Under the process described in state law, the closing agent will request a final bill from each utility provider. The utility generally responds with an estimated final bill, and the agent pays that bill from the seller’s funds at closing. Even though it’s just an estimated final bill, the law allows the agent to pay the amount shown on the estimate. The estimate is usually higher than the actual amount owed, and it’s the utility’s responsibility to refund any overage to the seller.

Utility Providers’ Responsibilities

Utility providers must respond to these requests from the closing agent within three business days. If they don’t, the lien is extinguished — it goes away completely! That means that the city, county, or water/sewer district no longer has a claim on the property for the amount owed. In other words, the utility can’t try to collect anything from the new owner (or from anyone the new owner might sell the property to in the future). The utility can still try to collect from the seller, but these collections are often unsuccessful, even if a collection agency is involved. Customers with past-due bills aren’t generally the most responsible ones, and threats against their credit score may not mean much to them.

It is also important that the utility provider gives an accurate estimate to the closing agent. The implicit lien for unpaid utility charges is limited to the amount provided in the estimate, which means that any further amounts owed by the seller must be collected from the seller directly, as if there were no lien. Utility providers will generally over-inflate their estimates, since it’s far easier to refund an over-payment than to collect from sellers after the fact.

Improving the Payoff Process

When everyone does their part, the process for payoff of utilities at closing as described in Washington State law works well. But it also creates time-critical workloads, especially for utility billing departments, who have to deal with final billing requests from title and escrow companies. During the peak season for real estate sales, it can be difficult to respond within the time window required by state law, and utility billing staff spend a lot of time trying to accurately estimate consumption-based utility usage.

Webcheck automates the majority of the initial interactions between closing agents and utility providers through an integrated web service. Using data from the provider’s utility billing software — including MUNIS, Springbrook, and many other systems — Webcheck automatically generates payoff estimates to title and escrow agents. This saves time and money at the utility and provides a high-quality customer service experience for closing agents.

If you are a utility provider in Washington, contact us for a demo!