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USFN 25th Anniversary

Guestbook
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Weathering the Storm of Home Foreclosures

by Robert Klein, CEO
Safeguard Properties – USFN Associate Member
and
Lawrence M. Garfinkel
Bendett & McHugh, PC – USFN Member (CT)

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.

Sharing Contact Info
As a starting point, the Mortgage Bankers Association (MBA) offered its website as a resource, posting property preservation contact information for the major national servicers so that code enforcement officials could more quickly identify a responsible party when code violations occurred. While that initiative helped, both servicers and city officials recognized the need for more data and resources.

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.

The VPR 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 Florida, California, Pennsylvania, and New York, as well as a notification statute in Connecticut. Thus far, no state has passed a statewide statute on VPR.

Primary Issues
The existing VPR ordinances, and those that are still at the proposal stage, address a number of different matters and concerns. The most common mandate is that the property owner be required to notify the municipality of its ownership of the property as well as identify the proper contact person at its own office and/or at a property management company. Often this requirement states that the contact person must be within a certain mile radius of the city or the property.

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.

There is 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 $35 in Milwaukee, Wisconsin to the payment of an annual fee (e.g., $18 in Palm Springs, California; $100 in Boston, Massachusetts; $500 in Burlington, Vermont). Other municipalities impose an initial fee and then a subsequent one when the property is sold to a third party. In addition, most of the ordinances carry a hefty penalty in the event that a vacant building is not registered in a timely manner.

Additional requirements imposed by the municipalities involve how to board or otherwise secure the properties. Chicago requires a specific amount of lighting and New Haven, Connecticut requires the exterior posting of a specific sign on vacant properties, which is provided by the local police department and warns that trespassers will be arrested. 

Future Challenges
There is a great deal of increased liability and responsibility for the servicer of a property in a municipality with a VPR ordinance. Timely decisions need to be made about the party responsible for registering the properties — whether it will be the servicer, lender, property management company, or foreclosure law firm. Just keeping up with the many different ordinances is a challenging task. A helpful resource is the online VPR Matrix maintained by Safeguard Properties at www.safeguardproperties.com. A link to the matrix is also found at www.usfn.org.

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