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Municipalities and their Requirements affecting Residential Foreclosures: California

Posted By USFN, Friday, January 29, 2016
Updated: Friday, February 19, 2016

January 29, 2016

 

by Kayo Manson-Tompkins
The Wolf Firm
USFN Member (California)

As a result of the high level of vacant properties in California, numerous cities throughout the state have enacted ordinances under the auspices of promoting the health, safety, and welfare of its residents, workers, visitors, and property owners, pursuant to the powers granted to them under CA Government Code Section 38771. Most, if not all, of the cities cite to the need to eliminate the blight caused in its neighborhoods as a result of vacancies. However, in the past few years, many cities have gone beyond vacancy registration and have added a foreclosure registration requirement — either independently or in conjunction with vacancy registration requirements. As of the writing of this article, there are approximately 124 cities with either one and/or the other requirement.

Many of the cities have implemented an online registration process. The key component of registering the property is to enable the cities to have a local primary contact who is reachable 24 hours a day, 7 days a week (24/7) and who can be contacted in an emergency such as a fire, criminal activity, or other incident that creates a hazard to the home and to the community. In addition, many cities require monthly inspections to be completed and various inspection reports to be uploaded to the city portal. Given these requirements, it makes sense that the person who serves as the primary contact should also be the individual responsible for registering these properties — regardless of whether the registration is for vacant property or for the commencement of a foreclosure proceeding.

There are several property inspection vendors that are capable of registering properties in those cities requiring registration, and it is advisable to utilize the services of a company that knows and understands the requirements of the cities. This is extremely important because the city ordinances can (and do) change on a regular basis and, therefore, must be constantly monitored. In addition, many of the cities have significant penalties for failing to comply with the registration ordinance.

In this author’s experience, property preservation companies have the best track record in registering properties and complying with the numerous other requirements imposed by California municipalities. Note that it is very important that the property preservation company be notified as soon as a notice of default has recorded. This event will trigger the necessity to register the property in a city with a foreclosure registration requirement. Furthermore, once the foreclosure of the property has been completed, the registration must be updated with appropriate information including a reference as to whether or not the property is vacant. An analysis below of two cities with recent changes to their ordinances is illustrative of what may transpire if a property is not properly and timely registered.

Los Angeles — This city passed Foreclosure Registry Ordinance 181185, which became effective on June 8, 2010. On November 12, 2014 it was amended to Ordinance 183281. The major changes to the foreclosure registry are proactive inspection requirements, uploading of the monthly inspection reports, and a requirement to de-register properties — all of which are to be completed online. The inspection reports must be uploaded every 30 days or there will be a penalty assessed. Registration is required for all properties where a notice of default has recorded, and when the property becomes an REO; the registration must be accomplished within 30 days of the event. The registration requirement applies for all properties, regardless of whether they are vacant or occupied. The registration fee is $155 and is valid for one calendar year. The property must be re-registered by January 1st of every year, and not later than January 31st. Los Angeles, like most cities, requires the contact information of a local agent that the city may reach 24/7. There is also a $356 proactive inspection fee when the property changes to an REO.

Under LAMC § 164.09, the city of Los Angeles will send out a 30-Day Notice of Non-Compliance for the failure to register, re-register, pay a proactive inspection fee when the property becomes an REO, or upload monthly inspection reports. If the notice is not complied with by the end of the 30 days, a penalty will be assessed at $250 per day until the property is in compliance. Within a few months of the amended ordinance, the city sent out a massive number of notices with penalties ranging from $24,000 to $48,000. In addition, the city has taken a staunch position of not negotiating a reduction of the penalties.

Moreno Valley
— The city enacted Foreclosure Registration Ordinance 887 on March 10, 2015, which became effective April 10, 2015. According to the ordinance, when a notice of default (NOD) is recorded, the property must be registered within 15 days of recording of the NOD. The registration fee is $400, which is valid for only one year, and must be re-registered annually on the anniversary of the original date that the property was first registered. If the property is not registered, the city will send a notice stating that if the property is not registered within 30 days of the notice, the first violation is $100; the second is $200, with the third (and all subsequent violations) $500 each.

The registration process may be completed online with the requisite information regarding the subject property. Furthermore, the ordinance requires the following:

“In the case of a corporation or Out of Area Beneficiary and/or Trustee, a direct contact staff member name and phone number with a Local property management company responsible for the security, maintenance and marketing of the Property in Foreclosure; such staff member must be empowered to (i) comply with code compliance orders issued by the City; (ii) provide a trespass authorization upon request of the local law enforcement authorities if the Property is unlawfully occupied; (iii) conduct weekly inspections of the Property; and (iv) accept rental payments from tenants of the Property if no management company is otherwise employed for such person[.]”

What is noteworthy about the city of Moreno Valley is that the registration requirement is retroactive, such that properties that were in foreclosure at the time the ordinance was enacted were required to be registered within 30 days after the effective date, or no later than May 10, 2015. In the event that any beneficiary has unregistered properties in foreclosure in Moreno Valley, it is highly recommended that the property preservation company be instructed to immediately register the properties and pay the outstanding registration fee and penalties.

The approximate 124 cities in California with some form of registration process are concerned with “blight.” As such, it behooves all beneficiaries and servicers to retain a property preservation company that stays abreast of the municipal ordinances and their constant updates and amendments, and to ensure that properties in their portfolios are being registered timely in order to avoid penalties.

A Vacant Property Registration (VPR) matrix is maintained by Safeguard Properties; it is publicly accessible at http://safeguardproperties.com/Resources/Vacant_Property_Registration/Default.aspx?filter=vpr.

Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report

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