Weathering the Storm of Home Foreclosures
by Robert Klein, CEO
The economic news confirms what the mortgage servicing world sees and feels every day. The mortgage crisis will likely get worse before it gets better. Foreclosures are happening exactly where we would expect to find them, and also where we would not. Large and small homes, primary residences and vacation homes, city and suburb addresses, rich and poor households; they are hitting virtually every zip code in the country.
Meanwhile, a stagnant housing market has meant that traditional sale homes linger on the market for longer periods of time and sell at greatly reduced prices. Higher rates of home foreclosures and a slow traditional market have delivered a one-two punch for servicers trying to move REO properties from their portfolios.
As REO properties stay on the market for longer periods of time, the risks of damage, vandalism, and financial loss increase with each passing day. To reduce these risks, servicers have been forced to re-think their strategies for maintaining and disposing of the properties. A higher volume of vacant homes also has challenged municipal code enforcement officials who are trying to deal with increased code violations in cities across the nation.
As an industry, we have come together as never before to reach out to municipalities, opening lines of communication and identifying ways to help them help us to keep vacant properties safe and secure until reoccupied or transitioned to a more productive use.
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Last year, the MBA took its outreach effort a step further and convened a vacant property registration (VPR) committee. This committee grew out of a need to address the proliferation of vacant property registration ordinances being considered and enacted by cities across the country that were frustrated in obtaining accurate mortgage records and serving notice on responsible parties to address violations in a timely manner. From an industry perspective, the committee recognized the challenges of attempting to comply with hundreds, and potentially thousands, of different ordinances across the country. The VPR committee agreed that there had to be a better way.
Additionally, the committee realized that the vast majority of mortgage servicers who are already proactive, accessible, and responsive to code violations would be the ones most likely to comply. Meanwhile, the parties responsible for the most troublesome properties would continue to be elusive. As a result, the concern for cities was that they would invest significant and precious administrative resources on an effort that would likely yield very little return.
In autumn 2008, the VPR committee developed a pilot program in cooperation with the Mortgage Electronic Records System (MERS). As part of this program, the MERS database, with information on more than 60 million properties, was made available to code enforcement officials in six test cities.
The trial cities expect to consider mortgage servicers participating in MERS to be automatically compliant with vacant property registration requirements. This reduces the administrative burden for code enforcement departments, and eliminates the need for servicers to comply with a multitude of disparate ordinances. The pilot program has been so successful that it was expanded to 50 cities in March, with a goal of rolling out the system nationally later in the year.
ordinances began solely as municipal in nature. It has taken some time
but the word seems to be out, and more and more municipalities are
jumping on the bandwagon. Additionally, there is some movement towards
state statutes rather than municipal ordinances. In one sense, this is
good for the industry in that there are only 50 states rather than
thousands of municipalities. However, it is obviously problematic in
that more properties will be covered if the trend continues in this
direction. There has been some spirited discussion on the VPR committee
calls regarding which structure is better for the industry, municipality
or state. As of now, there have been statutes proposed in
Further, there is always a time requirement as to when registration must occur; this is often within a certain number of days after the foreclosure. However, many cities require that the registration take place at some point during the foreclosure procedure, such as seven days after the foreclosure commences rather than after the process concludes. In addition, many cities compel the registration of all properties at a certain stage of the foreclosure process or after title has vested, not just the properties that are vacant. And most cities require registration upon discovery of vacancy, regardless of the property’s delinquency status.
almost always a fee required in order to register. Fees vary from city
to city across the country. The fees may range from a one-time fee of
Additional requirements imposed by the municipalities
involve how to board or otherwise secure the properties.
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