Buffalo News “Salvaging Foreclosed Homes”
A recent article in The Buffalo News chronicles efforts by the servicing industry to return abandoned properties to productive use.
Salvaging foreclosed houses
Crews clean, repair, monitor homes for eventual resale
Paul Dinehart gripped the railing and tested the faded wood steps before mounting them to the porch and striding to the front door of the East Side home. Unlocking it, he pushed it open slowly, calling out ?Hello? Hello?? in a booming voice.
Not receiving or expecting an answer, he stepped gingerly inside the foyer, past a broom and an exercise bike, and onto the dirty brown carpet, which was littered with papers, books, bags and other garbage. A white plastic chair and a blue AB Lounge Sport fitness machine stood along the wall.
?Careful, the floor is buckled here,? he cautioned his colleagues and a reporter behind him, as he moved farther into the house and felt the floor move beneath his shoes.
The three-story, blue-gray house has been recently abandoned by its owner, driven away by the threat of foreclosure initiated by his or her mortgage company.
Left behind in what seems like a hurry is the debris-filled, neglected property, covered in muck and filth, with a host of belongings haphazardly strewn around in various states of disrepair. A burst pipe on the second floor had caused water to cascade down as far as the basement, but that?s now receded, leaving dust, mildew and destruction in its wake.
But Dinehart and his colleagues don?t care about what happened before, or even whether the devastation they see was deliberate or just careless. Their job is just to clean it up, repair any critical damage, and get the house ready for a new owner. In this case, they estimate that means $20,000 of work.
?Most of the time, we never find out what happens. It?s not our place,? said Dinehart. ?We need to preserve and protect the property. We need to make sure it?s not a house that?s contributing to blight.?
Dinehart is a quality control field representative for Safeguard Properties, an 18-year-old Cleveland- based firm that inspects, monitors, repairs and maintains abandoned and foreclosed homes nationwide for mortgage servicing companies. The company uses a network of 4,000 contractors in all 50 states to inspect or maintain about 450,000 properties at any given time, including about 1,800 in Western New York in the last two months.
He and his co-workers are part of a little-known $1 billion industry whose essential job is to make sure the houses backing defaulted mortgages don?t lose value and can be quickly put back on the market. Otherwise, lenders can?t recoup losses, and are stuck holding real estate.
?The immediate goal is to make sure the value of the property does not deteriorate. We do whatever we can to maintain that condition,? said Safeguard spokeswoman Diane Roman Fusco.
With the nation engulfed in a mortgage crisis that threatens to send up to 2.2 million homes into foreclosure, most of the attention has focused on the impact on borrowers, lenders, and investors, and how to prevent foreclosure. There?s been little discussion of what happens afterwards, though.
The mortgage industry today is highly complex, with loans originated by brokers, sold to Wall Street, and packaged into investment pools whose income stream is sold in pieces to investors. But behind every investment security is a loan, and behind each loan is still a house, on a block, in a neighborhood where other people live.
Western New York has not been hit as hard as many parts of the country, largely because the region never saw the housing and mortgage boom found in California, Florida, and Arizona. But even with a significantly lower subprime foreclosure rate here ? 5.6 percent versus 9.7 percent statewide ? there are nearly 200 homes in foreclosure just in the city of Buffalo, and 509 in the eight-county area, all because of subprime loans.
Besides causing a loss to the lender, foreclosed, vacant and derelict homes can devastate the communities around them. Neighboring property values fall by at least several thousand dollars, municipal tax revenues drop, and cities and towns must spend thousands of dollars just to inspect each abandoned home, let alone maintain or fix them. Demolishing houses can total hundreds of thousands of dollars or even millions of dollars a year for large cities.
?It?s a crisis. Communities are reeling,? said Joe Schilling, director of research and policy for the Washington, D.C.-based National Vacant Properties Campaign, a collaboration between Smart Growth America, Local Initiatives Support Corp., and the Metropolitan Institute at Virginia Tech. ?It?s going to be the local governments and the neighbors that are going to be left holding the bag.?
The mission of companies like Safeguard is to prevent that. Much of their work involves just inspecting a home after a borrower has defaulted, to make sure the house is still occupied, determine its condition, and report back to the client.
The companies only turn to active preservation when the homeowner abandons the home or the foreclosure is completed. At that point, the lender takes possession, and the property is considered ?Real Estate Owned? ? or REO in industry terms ? on its books.
In the past, the companies did just basic work for their clients, literally taking out the trash and cleaning the houses of any debris, food and belongings left behind. But as the mortgage industry has exploded in size and its needs have evolved, so have the services they provide.
They still secure the properties with locks, board up broken windows, and repair any significant structural damage ? such as roof leaks or burst pipes ? as soon as they take possession of a house for a lender.
But now they also ?refresh? the properties, providing maid service, mopping floors, wiping up dust, vacuuming carpets, and arranging for the grass to be cut, hedges to be trimmed and snow to be removed. They also ?winterize? the plumbing, shutting off water, draining lines, and taking any other steps to ensure pipes don?t burst and houses don?t flood.
?The services used to be basic, but now it?s becoming more refined,? Fusco said.
They even put air fresheners inside the houses so potential buyers aren?t turned off by any odors.
?The majority of properties . . . are usually left with tremendous amounts of debris and varying levels of filth and scum,? said George Correa, a real estate agent with Western New York REO Specialists, a division of Hunt Real Estate ERA that offers the same services as Safeguard, but also markets and sells the homes as a broker.
?If a property has a lot of garbage in it, it creates a negative atmosphere and the offers you get reflect that. If you clean it up, hopefully you can get a little bit of a better offer.?
Take the East Side home that Safeguard just secured. The kitchen sink was full of water, while a pair of scissors and a tampon package sat in the bathroom sink next to a stick of Secret deodorant and a flattened roll of toilet paper. A carton of eggs and a box of Minute Rice stood on the kitchen counter.
Ceiling tiles and cracked porcelain shards littered the bathroom floor near a dirty toilet. A torn mattress lay on the floor of the nearby bedroom, with scattered clothes, papers, and a black-and-purple wig alongside, and a music CD, phone book and large fan in the next room. In the basement were cans of paint and paint thinner, a bookcase with warped shelves, and a computer monitor.
?We don?t know the situation with the people, but obviously they?ve left stuff,? Fusco said. ?These are desperate situations for these people. They?re losing their properties. Chances are they have other issues as well.?
15%-20% are trashed
And that?s not uncommon. Correa said 15 percent to 20 percent of the 70 to 80 properties
his team handles at any given time are trashed. ?And the amazing thing is people were living there,? said Correa, who handles about 300 homes every year and works for about 20 clients. ?They made an even bigger mess when they didn?t care anymore [but] these people actually lived like this.?
Sometimes homes are vandalized, either by the former owner or someone who saw they were vacant. The rising price of scrap copper has made theft of copper pipes commonplace in the last 10 months, with vandals ripping through walls and causing several thousand dollars in damages to get less than $100 worth of copper.
Kitchen counters, bathroom toilets, lights, hot-water tanks, and even furnaces have been stolen. Correa has even found windows and doors missing, only to look across the street to see a neighbor installing new ones that didn?t quite fit.
?You look at that, and you can?t do anything,? he said. ?You just avoid a confrontation.?
But while much of the mess has to be cleaned up, crews don?t throw everything out and don?t repair everything. Some belongings get taken to storage in case the owner reclaims them. And once the home is secured, many decisions about large repair projects or enhancements are up to the mortgage company, which will only do what is necessary and appropriate for the neighborhood, but won?t spend more than the house is worth. So the basic guideline is simply to address ?anything that would deter a sale,? Dinehart said.
Most homes don?t require too much work.
Safeguard in mid-November secured a yellow duplex with red doors and shutters and tanpainted bricks on the Upper West Side following an eviction. The company removed debris, addressed a minor roof leak that had caused water damage, and provided maid service.
But several walls still have picture hooks, colored pins and nails in them, and one bedroom has fluorescent yellow stars of various sizes stuck on the wall. The carpeting lining the front stairs is torn in several places. And there are holes carved into the wall above two closets.
?Something like that wouldn?t deter a sale,? Dinehart said.
To view the online article, please click here.
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland,?OH? and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 450 employees.? Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico