Managing REO “Initiatives to Combat Vacant Blight”
Robert Klein, CEO of Safeguard Properties, was recently interviewed by Managing REO Magazine regarding the initiatives of property preservation companies to lower the impact of vacant blight.
Initiatives to Combat Vacant Blight
Field service companies and property preservation teams are making a difference in local communities by forming new initiatives to care for vacant real estate owned assets.
By Jennifer Harmon
The industry is dealing with increasing amounts of vacant REO properties. As their values drop, mortgage companies are being hurt as much as the next-door neighbors.
Robert Klein, the founder and CEO of Safeguard Properties, believes lenders today are focused on doing a better job on the basics to maintain a property.
Beginning in September, Safeguard will launch its “Good Neighbor” door hanger contact procedure where at the initial secure of a vacant property, the company will leave door hangers at neighboring properties with an 800 number to contact the company 24/7 if they notice any questionable activity or maintenance issues that need attention.
This approach, which comes at no cost to clients, has received enthusiastic endorsement from code enforcement and city officials, says Mr. Klein. The privately held field service company, located in Cleveland now has over 500 employees nationwide.
“It’s very positive when you make contact,” he says. “The neighbor knows someone is paying attention to the home , to this vacant property. They know it is being maintained on a regular basis. It’s not just in limbo and no one is paying attention to it.”
It is critical to understand these properties. The industry spent well over $1 billion last year to secure and maintain safety and health issues of these homes, according to Mr. Klein. “I think we have a great responsibility. Vacant properties impact me and where I live. As an agency, I think it’s something we should be doing. We can’t solve the entire housing problem, but in our little world, we do what we can. We make the best out of a bad situation.”
Safeguard is focused on proactively partnering with cities and municipalities in dealing with issues that lead to vacant blight. Servicers and local govemments are partners in fighting blight, maintaining safe neighborhoods and ensuring properties are maintained.
Mr. Klein says the correlation between vacant properties and criminal activity is also well documented in communities nationwide.”As foreclosures and vacancies mount, we have seen a material increase in the number of copper pipe thefts, arsons and related crimes at these vacant properties. This ripple effect drastically reduces the servicer’s collateral in their assets and wreaks havoc on the communities where the properties exist.”
During extensive communication with code enforcement officials around the country, Safeguard found that it is common practice that all complaints regardless of type (tall grass, theft, vandalism, etc.) must be acted on appropriately to resolution. Typically, the city will issue a citation, complete the required maintenance, declare the property a nuisance and/or place the property on the local fast track for demolition.
“We’ve been in touch with code enforcement officials for the past five years,”he says.”The biggest concern is that they can’t handle the calls coming in from the neighbors to respond to these complaints. It puts the burden on the city to send someone out.”
A lot of times the neighbor does not know who to contact at the lender or servicer they have an issue with a property. “We work with the cities. The MBA (Mortgage Bankers Association) has created point of contact on their web site with code enforcement to help resolve these issues.”
The company is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation and maintenance functions. With this door hanger initiative, it takes the burden off of the city officials to get to these complaints.
Vacant blights are a national issue. Mr. Klein says neighbors are the best eyes and ears to detect problems.Sometimes after a company like Safeguard does an inspection of a vacant REO, the day after the company leaves, something terrible can happen. “These programs add more security to the property to make sure it is better maintained.”
The biggest goal is to make sure the property is not an eyesore. Safeguard makes sure the grass is cut, that there are no broken windows and if there is a leak inside the home, the company addresses those types of problems.
Safeguard now does the maid service. After the mortgage company has taken title and the property is vacant, Safeguard goes out and cleans the property and removes the cobwebs.
“You have no idea what we find in some of these properties. We will wash the counters down, clean the fridge, put in air fresheners so it doesn’t smell like an REO,” says Mr. Klein.
“The lender wants to sell it as soon as possible to a homeowner who will live in the property. You want to make it as attractive as possible. But also sometimes it doesn’t make sense to make repairs. You have to make it look and smell good. We try to do the best we can. We do as much as we can so the neighbors don’t have a run down home with 50 tires in the front yard.”
Properties are becoming more seriously damaged as well. Some homeowners in foreclosure are so frustrated they will do serious damage to the property. They take out appliances, put holes in the walls and holes in the floor. “There is no rhyme or reason. They are taking their frustration out on the system or the process. We are seeing that more and more.”
By the time the mortgage company gets a hold of one of these properties, it is problematic. Safeguard will hire different contractors to do different repairs such as re-roof a home. In today’s market the industry is seeing an increase in the amount of repairs being done to vacant REOs.
“The goal of the mortgage company is to sell it as quickly as possible. Every day they hold on to it is costing them money, in addition to the foreclosure process. It’s a bigger financial loss. We want to make the house as inviting and attractive to the possible homeowner. This depends on the value of the property and how much the lender can get. The things you do to a $500,000 home are different than a home that is $30,000.”
Even for a home that is around $250,000, lenders are doing more for repairs. The objective is to get the highest return because the lender has already lost money. “It’s worth it to put in $10,000 to a home if you can get additional value on the home,” he says.
“Regardless of whether the repair is done or not,there is a heightened awareness to make sure the property compares with the neighborhood.”
Years ago, REOs competed against other REO properties, Mr. Klein recalls. “In today’s environment that is no longer the case. REO are competing with the homeowner trying to sell their property. You have to compete. If the neighbor has a nice front lawn with grass trim, you have to do the same thing. II’s a business decision.”
The bottom line is that vacant properties should conform to the rest of the neighborhood. In addressing the blight issue, it will take different means for different areas of the county, he said.