DS News “One Vision, One Voice for Vacated REO”
Robert Klein contributed an article to DS News about the wave of vacant property ordinances being considered by municipalities across the country.
One Vision, One Voice for Vacated REO
A Full-Fledged Effort Between Cities and the Industry to Create Workable Vacant Property Ordinances Is Key to Thwarting Urban Blight
The mortgage servicing industry faces enormous challenges complying with vacant property registration ordinances that either have been enacted or are being considered in municipalities across the country. Not only do these ordinances vary significantly from city to town, but many also are unwieldy and expensive to comply with, and some ironically have the potential to create more harm than the issues they are attempting to address.
One Vision, One Voice
All industry participants share the same goals with regard to vacant properties: maintain the properties and keep neighborhoods safe and secure. Reaching out and opening channels of communications
between municipalities and servicers is always important to build and maintain strong relationships
between our industry and the communities. However, the issue of vacant property ordinances requires that the servicing industry first work collectively to develop a unified voice and common platform in order to speak as one to address issues with municipal leaders on a national scale. By collaborating on best practices in a national forum, the industry can achieve these common goals most efficiently and effectively.
VPR Group Helping Keep Neighborhoods Secure
For this reason, servicers and field service providers have formed an ad hoc Vacant Property Registration Committee under the direction of the Mortgage Bankers Association (MBA) to offer input to municipalities considering ordinances. The goal of this committee is to engage cities in dialogue before they enact new ordinances, ultimately to ensure that the ordinances cities pass will achieve the desired result: effective maintenance of vacant properties to reduce and prevent neighborhood blight.
Currently, the committee is working to develop a “model” ordinance to assist municipalities in their efforts to create effective vacant property ordinances. This model will incorporate provisions from the most effective city ordinances across the country, with the hopes that cities will use it as the basis for creating their own. The purpose in creating this ordinance is not an attempt to impose the industry’s collective will on municipalities. Quite the opposite, it is to help them do their jobs more effectively.
The committee has held a series of industry calls to solicit input from servicing representatives.
Additionally, a list of vacant property ordinances has been developed that includes the municipality, ordinance enactment date, a link to the complete ordinance, and a summary of key issues in the ordinance. The list is available at this link. It is updated regularly as new ordinances are identified. Industry input calls have been held in advance of city meetings where ordinances are being discussed and proposed. In particular, the group has focused on larger cities enacting new ordinances or updating existing ones, since larger cities often become models for other cities to follow. Since May, Chicago and Riverside County, California, have held public meetings to present their proposed vacant property registration ordinances.
Concerns with Key Provisions
Provisions in proposed vacant property ordinances raising concern among industry representatives include the following:
? Lack of uniformity in ordinances
To comply with each city’s different ordinances, national servicers must amend servicing procedures for each individual city in which properties are located. Servicers are concerned that maintaining compliance will become more challenging with each new ordinance enacted across the country. Industry representatives recommended creation of a model ordinance as a guideline for cities to follow.
? Presale vs. postsale registration
Some ordinances require registration of properties within seven days of initiation of the foreclosure process. Servicers are concerned about presale ownership liability and implications of “mortgagee in possession.” A city may attempt to hold the servicer liable for the property, even though the property owner still has the ability to become current with the mortgage. Generally, vague language that is open to interpretation raises concerns. Specific to the seven-day registration requirement, servicers were concerned that this could include occupied properties, since the foreclosure process often begins well in advance of abandonment. The primary benefit of presale registration is that the municipality has a direct point of contact to address violations and safety concerns. With a point of contact established,
the expectation is that there will be a drastic reduction in the issuance of violations and unilateral condemnations. For postsale properties, servicers generally recognize the need to register properties, as they are full-fledged owners. Because servicers are not seeking to retain properties in their inventory, the recommendation is to allow for a registration window of 60 days after taking title or possession.
? Definitions of vacancy status
Servicers would like municipalities to define the term “presale” and clearly define the differences in vacancy status: vacant and maintained and vacant and abandoned. Industry representatives recommended separate registration requirements for presale and postsale properties.
? Presale ordinance requirements
The mortgage deed gives servicers the right and the responsibility to preserve and protect their mortgage collateral in defaulted and foreclosed properties. In presale, servicers are unable to comply with certain ordinance requirements because they extend beyond the preservation and protection stipulations. Examples of those include requirements to grant presale property access to city inspectors, removal of personal property from the interior and exterior of the property, and re-keying of all exits to deny access to homeowners.
? Maintenance contact requirements
Many ordinances require that the maintenance contact be located within a specific distance of the property. This requirement is challenging for servicers who utilize national field service companies. Additionally, in large metropolitan areas, it may require that many different contacts be listed based on the location of the property. Recognizing that the purpose of this provision is to ensure that issues are addressed in a timely fashion, the suggestion is to identify time requirements to address maintenance and safety issues. As a side note, some ordinances may require a city, county, or state contact for the purpose of serving legal notice. This is a separate issue that does not raise the same concerns.
? Registration fees
Registration fees vary widely, from one-time fees of $35 to annual fees in the hundreds of dollars-one locality even requires a $6,000 fee. Representatives raised the question whether fees are reimbursable by HUD and other investors and whether they should be added to the unpaid principal balance (UPB) if the loan is made current. The committee will request investor guidance on this.
Failure to comply with ordinances could result in fines of hundreds of dollars per month per property. In many cases, the ordinances do not consider “intent.” Additionally, in some ordinances, this requirement is vague and may imply that a penalty could be imposed at each occurrence or visit by an inspector. This could result in significant fines.
? De-registration of properties
Many ordinances do not identify a formal de-registration process. This may lead to cumbersome processes requiring inspections to establish proof of re-occupancy. Additionally, industry representatives generally believe that any de-registration process should identify the steps a servicer would take to remove its name in instances, for example, where the loan is sold and the servicer is no longer the responsible party.
? Property maintenance requirements
General statements in ordinances that properties be maintained to applicable building codes and local regulations are too broad, as they may entail code upgrades, cosmetic repairs, and other costly maintenance.
? Securing of windows and doors
In some cities, provisions are being considered to provide a more attractive alternative to boarding. In situations where metal alternatives are being considered, the group raised concerns about the increased risk of vandalism by metal thieves, the additional cost, and that current industry practice of bolt-boarding is the most effective way to keep a property secure from vandals.
? Signage requirements
Many ordinances require that properties have a sign visible from the street displaying the name, address, and 24-hour contact number. The concern is that this type of signage advertises that a property is vacant and actually could invite vandalism. Additionally, this requirement may be unworkable with multiunit structures, within gated communities, or where properties are part of a homeowners or condominium association, as there may be signage restrictions.
? Lighting requirements
Some ordinances impose requirements for lighting the property. This provision raised concerns because it is costly and invites theft of the lights themselves.
A Model Ordinance
Certainly the industry recognizes that vacant property ordinances are essential for communities to have in place to provide cities with legal recourse when property owners and others fail in their responsibility to maintain vacant and abandoned properties.
Additionally, each municipality has the right to enact whatever ordinances it chooses to maintain property values, uphold the integrity of neighborhoods, and protect the community from blight and crime.
At the same time, in enacting vacant property ordinances, cities don’t always understand how the servicing industry works and what efforts are currently being done to protect individual properties and thereby entire neighborhoods. Many cities, for example, are not aware that servicers utilize national field servicing operations to inspect and maintain properties, and that this process is usually far more efficient than having a local point of contact. Clearly, many officials drafting vacant property ordinances are not aware of the legal conflicts that some of their proposed ordinance provisions create. And most cities create ordinances without the benefit of field experience, which would help them consider the potential negative consequences that could result from some well-intended provisions.
Banding Together for Change
This is why the MBA and the Vacant Property Registration Committee are aggressively engaging in outreach efforts to open dialogue and offer the industry help and support to enact ordinances that are effective and enforceable, and that help cities respond to the growing challenges they face in dealing with vacant and abandoned properties-hopes that a “model” ordinance will be a useful resource for them.
In addition to reaching out to individual cities when ordinances are being considered, the industry is also raising awareness about the issue and offering its support and collaboration through the U.S. Conference of Mayors and other national forums.
In reality, the servicing industry and cities share a common goal-to shield communities from blight brought on by vacant properties and protect them from damage and vandalism. As an industry, it is in our best interest to collaborate with cities and be a credible partner in helping them develop workable vacant property ordinances.