Cleveland Plain Dealer “Mortgage field service firms doing well in Cleveland amid foreclosures”
Recently, the Cleveland Plain Dealer featured an in-depth look at the efforts of? the loan servicing industry to?mitigate the potential consequences of?the increasing number of vacant and abandoned properties. With the initial condition of these properties deteriorating (as increasing reports of “property stripping” surface), superior maintenance of these properties is vital to?protect them from ?further damages and return the properties to productive use.
Mortgage field service firms doing well in Cleveland amid foreclosures
Foreclosures mean plenty of work for firms that maintain and manage vacant homes
Who wants to buy a house that has been sitting empty for months?
Its copper pipes have been ripped out by vandals, the cast iron pipes have burst in freezing weather, and it’s full of junk left behind by people who don’t care about its condition.
After all, they’ve just lost their home. It doesn’t matter to them whether it sits on the market forever, its value deteriorating.
But to the new owners of properties like these — banks or other mortgage lenders — it’s starting to matter a lot.
In the past few years, lenders have lost many millions of dollars on properties that they’ve taken ownership of after mortgages have gone into foreclosure.
In 2007, there were more than 2 million foreclosure filings nationwide, nearly 14,000 in Cuyahoga County alone.
Five or 10 years ago, some lenders would have unloaded the properties as quickly as possible, accepting the loss and moving on.
But these days, because of the sheer number of properties to deal with, that approach has become extremely costly, said Robert Klein, chief executive of Safeguard Properties Inc. in Brooklyn Heights.
That’s where mortgage field service companies like his come in. Lenders hire them to change the locks, mow the lawn, drain the pipes, clean up the place, maybe even do some remodeling — whatever it takes to get the property sold at a price the lender can swallow.
This little-known industry, like the foreclosure crisis, has grown tremendously over the past few years.
“Anytime a bank takes a property to foreclosure, they’re losing heavy-duty money,” Klein said.
Safeguard’s job is to lessen the bleeding.
“Right now, there’s a tremendous, tremendous emphasis on protecting the collateral, in making sure property doesn’t get damaged,” he said. That means deterring vandals and preventing vulnerabilities like a weak roof or bad pipes from creating more expensive problems.
He said Safeguard clients also aim to maintain neighborhood property values and attract buyers who will actually live in the houses, rather than try to turn them over for a quick buck.
That means making the house look occupied and keeping it in a condition that’s more desirable to families.
“For a bank, securing and maintaining homes is not their main business,” Klein said. “This is a very small part of their world. Our clients have come to rely on us.”
The mortgage field services industry isn’t new, though.
Tim Doehner, executive director of the National Association Mortgage Field Services, said banks have hired contractors to keep up bank-owned properties for as long as he can remember.
But before foreclosures were so widespread, banks typically hired contractors themselves, or hired real estate brokerages to handle it, he said.
“In the past 10 to 15 years, it’s become an industry in itself,” Doehner said.
NAMFS is a trade group that was founded in the 1980s. It has around 350 members, which range from local construction companies to big players like Safeguard and FIS Field Services in Solon.
Those national companies have emerged in order to service today’s large banks and mortgage companies that own properties all over the country, Doehner said.
Safeguard was founded in 1990 and started out in Ohio, Michigan and Pennsylvania. Today the company does business in every part of the country and employs nearly 500 people, not including more than 5,000 contractors it hires to do work on the homes.
Jeff Tortorea, president of Lost Pond Construction Inc. in Chardon, said he gets at least 80 percent of his business from Safeguard. He has four construction crews that do work in Northeast Ohio, taking on an average of 20 jobs a day.
The most common job is simple: An exterior inspection to make sure someone is still living in the house after the owner starts missing mortgage payments. If the owner is still there, the contractor does nothing more. Safeguard commissioned 4.8 million of those inspections last year – about 12,000 in Northeast Ohio just during September and October, the latest months for which local numbers are available.
In the fraction of cases where the home goes into the foreclosure process, a contractor like Lost Pond is sent by Safeguard to make sure the house is secure by doing things like changing the locks and boarding up any broken windows.
Once the foreclosure process is complete and the lender takes ownership of the house, Safeguard offers a range of services to the lender – including remodeling, repair and cleaning services. Safeguard did about 2,000 of those jobs in Northeast Ohio in September and October.
John Caputo, of Fowler and Sons Construction Services in Lyndhurst, says a lot of properties are in less than good shape when a bank gets them.
“If somebody doesn’t have the money to pay their mortgage, chances are they also don’t have the money to keep up the property,” he said.
In Cleveland’s Glenville neighborhood, an out-of-town bank that Safeguard asked not be named is spending more than $20,000 to spruce up the exterior of a property and to repair interior damage apparently caused by vandals.
The job includes replacing a missing water heater and furnace, fixing the porch, replacing storm windows and doors and exterior painting.
Boni Dellarose, director of home sale services at Real Living Realty One, said many of the lenders that list their properties with her agency work with large field service firms like Safeguard. But some of the smaller banks don’t, and they expect the real estate agency to do the basics.
Dellarose said she will hire contractors to winterize houses and to maintain the exteriors. She said keeping the properties maintained is important for the community and the real estate market.
Ten years ago, Safeguard’s Klein said, “banks and even cities weren’t paying as much attention to a vacant home on their block.”
But now, it’s too big a problem to ignore.
He said the interests of his clients and municipalities should be the same: to reduce the number of houses that go into foreclosure and to take care of the ones that do.
He admits, though, that the increase in vacant homes has been a boon to Safeguard.
“As delinquencies continue to grow, we’re going to have more business,” Klein said. “We try to give something back by doing the job right.”
So what happens when the foreclosure crisis comes to an end?
Klein said an improved housing market would be good for everyone, including Safeguard.
“We’re diversified,” he said, coyly. “Right now we have our hands full, but I think there’s plenty of work out there outside of the foreclosure business. We are looking ahead.”
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About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio 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.
