City of Molalla practice of slapping liens on residential properties: illegal?
The city of Molalla began conducting a utility billing audit last fall, discovering hundreds of unpaid water bills, a majority of which are not in the property owner's name, but rather a past tenant's name.
The city began slapping liens on those residential properties without notifying the owners, resulting in at least dozens of people discovering they owe hundreds of dollars, in many cases, to a collections agency, including fees and interest, that must be paid for the home's water to again be turned on, or before the property can be sold.
And it's a practice that appears to be illegal under Oregon Revised Statute 2015 ORS 91.255.
The Oregon Statute
The statute says a utility company shall not transfer a claim against a tenant to the owner of the real property without the written consent of the owner. Municipal utilities also are required to notify a property owner of the delinquent status of their tenant's water bill by first class mail within 30 days from the time payment is due on the account.
Additionally, the statute says municipal utilities cannot deny or shut off service to any subsequent tenant based on any lien for unpaid services from a previous tenant unless the owner is notified, again, by first class mail at the time the delinquent tenant was notified.
Mayor Jimmy Thompson expressed frustration when the statute was read to him over the phone.
"We have attorneys who are supposed to be protecting us from these types of situations," he said. "I will do everything in my power to make sure we are compliant with the law, and we get it resolved quickly."
A Pandora's Box
City Manager Dan Huff said the city began a utility billing audit last November. And so far it's revealed not only outstanding water bills, but also cases where a property owner sold a house with a lien on it where the title company failed to call the city, so "no one knew" the debt existed at the time of the transaction.
The audit also found there were some accounts where the water meter had been locked off, but somewhere along the line, someone, whether it was a property owner or a tenant, unlocked the meter, and no one came in to apply for an account. In some of those cases, Molalla's water utility service was used for as long as two years, Huff said.
"We found through looking at our software program that someone in the past unchecked a box that produces a report that allows us to see when water is being used," Huff said. "Since then, it's been rechecked, and we're finding it's providing us more accurate information. Only when we opened up the auditing process did we realize we had a Pandora's Box."
Huff said other cities have rules in place stating that only a property owner can open a utility account in his or her name rather than allowing tenants to sign up for water services, the point being that it's difficult at best to go after renters who don't pay their bill and move out of town.
He said the city recently implanted a new service application in its computing system that includes the name of the property owner so he or she will be notified when a tenant's bill is past due.
"I signed up for water service myself when I moved to Molalla," he said. "The property owner didn't have to authorize it at all."
Huff said that on June 2, City Finance Director Chaunee Seifried contacted Western Collections and asked the company to release back to Molalla the older past due utility accounts — those recently sent to collections will remain — because the city "has no problems with the old ones no one really knew were there."
Seifried has been out of town and was unavailable for comment at press time.
"We'll get those back from the collections company and inform the current owners," Huff said.
"Some (property owners) have come in and talked to the council, asking if they can pay the outstanding bill," Huff said. "We don't have a problem with that — it makes it easier for us too. If you're willing to come in and pay the outstanding bill, we will dump the liens and everything else, or at least that's our plan. One thing is, if you're a property owner who rents a home, the city is not going to take the brunt of renters leaving without paying their bills. The owner will have to sign a new application, and going forward, we're not going to have this problem — the property owner will know if a bill is not being paid right away. If the owner wants the renter to pay the bill, the renter can sign up for service, but only after the property owner or designee, like a management company, has signed the actual application for service."
Thompson said it's his understanding that the city plans to waive the penalties and fees once Western Collections hands over those older, outstanding utility accounts, as long as property owners pay the principal balance on any outstanding water bill. If they don't, those costs would be spread out over the entire community and all Molalla residents will end up picking up the tab for a property owner who received a benefit in the form of rent payments from a tenant that lived at one of their residential units.
Huff said what started as a simple utility billing audit process turned into a bigger project than anyone thought, but it's all part of the city of Molalla growing up as the town's population continues to increase.
"When you have a city of 4,000 people, which we did in the relatively recent past, the city operates in a certain way, but when you have a lot of growth, and the city doubles in population, but is still operating like it's serving a town of 4,000, there will be some problems," Huff said. "The good news is this won't happen anymore."
The issue seems to have been exposed in September 2016, when a tenant of property owned by JoAnn Everhart moved out. After the tenant moved out, Everhart discovered that water at that home had been shut off, so she went to city hall to ask to have the service turned back on in her own name, just as she had always done.
Everhart, who owns sixrental properties in Molalla, later discovered, after repeated trips to city hall, that the city had also placed liens on two other of her properties without notifying her.
She said that in the past, when a tenant moved out and left an outstanding water bill, the city "went after" the tenant for repayment. But this time, she was told the water would not be turned back on in her name until the bill, which was in the tenant's name, was paid in full. That bill totaled $380, and she said she was told that the city would place a lien on the property if it was not paid.
"I was upset," Everhart said. "I've been renting houses in Molalla for 30 years, and every time a tenant moves out, I go to city hall or call and tell them to put the water and sewer (account) in my name, and they always say that's fine. Sometimes they've asked if I knew where the tenant moved to, because they had an outstanding bill, and they would always say, 'We don't go after you, the landlord, we go after the tenant.' This time, they said I had to pay the tenant's water bill before they would turn it back on, and if it was not paid, they would put a lien against my house. I said I never heard of that before — when did this start?"
Everhart said no one at the city provided her with an answer, following at least three in-person inquiries at city hall.
Everhart said Huff told her there was a new ordinance in place that allowed the city to place a lien against a property owner whose former tenant skipped out on paying his or her utility bill. Everhart said that she asked to see a copy of the ordinance, and that Huff told her it would be mailed to her. But it was never delivered.
Thompson said the city updated its water utility rates earlier this year, but he could not recall any ordinance passed, since being elected to the city council six years ago, that specifically stated the municipality could place liens against an owner's property when a former tenant failed to pay his or her water-sewer bill.
Everhart said she offered to provide the city with the forwarding address of her former tenant, who she knew had purchased a home, and that the city should put a lien on his house, not hers, but she was told that the tenant's account was being turned over to collections, and a lien would be placed against her property.
Everhart said the city eventually turned the water back on to the house, even though she had not paid off the outstanding bill, which is a violation of ORS 91.255.
Howard Hall, owner of Hall's Barber Shop in downtown Molalla, said he went to sell one of his rental properties and learned he had five liens on two of them for outstanding water bills left by previous tenants. He said he paid $1,600 "to clear them up."
"I paid a lot of money to get that taken care of, so I could go ahead and sell the property," Hall said. "I've tried to put it out of my mind. Other people come and ask me about it, and I tell them what I can."
Hall said he had to pay a collection agency, Portland-based Western Collection Bureau, Inc., and the company would not provide him details about the outstanding account unless he was represented by an attorney, who they said should make the inquiry. Representatives of Western Collection said repeatedly they were forbidden to speak to the press about anything, per company policy.
Melinda Villalobos, owner of Molalla-based Northwest Professional Realty, said she was in the process of selling a client's house and during closing she was informed by the title company that they could not close the deal because there was a lien on the property from the city of Molalla for an outstanding water bill.
"I talked to the city and found out that when you have a rental and the renter does not pay their sewer or water bill, the city goes after them, but at the same time, they put a lien against the property and sent it to collections," she said. "My client had to pay $600 to get the lien removed, even though it was not his lien. The city is forcing people, as they sell their houses, to pay someone else's outstanding bill before the sale can be completed."
Bob Yoder, who owns a rental house on East Main Street, said that after speaking to Hall and Everhart, he decided to check to see if there was a lien on his property. He said he was stunned when the city produced an outstanding water bill from 2008 for $196.
"Then, they gave me a number to call a collections agency, and I thought, 'What the hell is going on?'" Yoder said. "Collections said they would call me back, and when they did, the total came out to $584.
They're claiming it's against my property, but again (the bill) was a past tenant's. I had a prior tenant from 2008, and since he moved out, I've had the same tenant living there. (The current tenant) got behind once, and the water was shut off, but the city turned it back on, and ever since everything's been cool. All of a sudden, they're threatening to put a lien on my property because of that prior tenant's bill. It was not my bill. I've lived in Molalla for 50 years and I've never heard of anything like this."