Robert Klein, CEO of Safegaurd Properties, was quoted in a recent MBA Newslink article.

REO Properties a Sticking Point for Servicers, Municipalities

Wisniowski, Charles

TAMPA, Fla.– Lenders and mortgage servicing firms must ensure that every real estate owned property that comes into their inventory is preserved and protected or risk a hostile and costly confrontation with local government officials, property preservation experts said here at the Mortgage Bankers Association’s National Mortgage Servicing Conference and Expo.

As high default rates and increasing numbers of vacant properties expand the industry’s REO inventory, servicers find themselves increasingly in the cross-hairs of disgruntled and cash-strapped local governments, said Cary Sternberg, senior vice president of REO with American Home Mortgage, Irving, Tex.

“There has been a huge increase in the amount of activity initiated by local governments in an effort to try to stem urban blight,” Sternberg said. “In many locations throughout the country, the tax base is dropping and the amount of revenue being raised by localities to take care of city services is also dropping. They need to look for ways to keep their cities going. It’s a difficult problem to deal with and servicers like us are dealing with cities and municipalities all over.”

Unfortunately for the industry, municipal officials don’t always understand legal complexities involved in supervising REO properties, nor do they grasp convoluted constraints under which servicers operate. Often, Sternberg said, they don’t care but they do understand that they want vacant property problem solved.

“[Municipalities] are absolutely very well-meaning and they are very concerned about their areas,” Sternberg said. “We try to understand that, but they are also singularly focused on their own areas and a lot of time they don’t realize the impact [of their actions] on servicers.”

In addition to ignorance of servicers’ duties and responsibilities, Robert Klein, CEO of Safeguard Properties, Brooklyn Heights, Ohio, said a lack of communication between servicers and municipalities can prompt frustrated local officials to strike back, via onerous legal actions such as fines or mandate servicers to make often expensive repairs to bring the property up to code.

“These citations requiring the lender, the title holder, the investor, to repair the property is the big stick that code enforcement officials carry. They know they have a big stick in their hand and they know they have the power to do that,” Klein said. “Their concerns are to maintain the property so it doesn’t deteriorate in the community and so it does not become a base for illegal activity. They want to protect the neighborhood and they will use that big stick and [they will] issue those $70-$80-$90,000 fines when there is a lack of communication.”

By contrast, when open dialogue exists between servicers and local government officials, “most of the issues go away,” Klein said.

Marc Hinkle, vice president of loan servicing with PHH Mortgage, Mount Laurel, N.J., agreed, noting that it’s incumbent on servicers to keep abreast of all local codes and ordinances, as well as new laws passed by local governments. He suggested inspecting the property immediately, documenting its condition, and conduct periodic follow-up inspections to ensure it remains in good condition.

Mike McKeever, managing director at Goldbeck, McCafferty & McKeever, Philadelphia, said it’s in servicers’ best interest to go the extra mile to communicate both with local government and with the current or former home occupants. He suggested servicers post a notice on the property as soon as falls under the servicers’ domain. This serves to both cut down on the “surprise factor” by residents that generate the most complaints but it also gives code enforcement officials a point of contact.

“Code enforcement officers need to know who to get in touch with,” said McKeever.

McKeever warned that pain for servicers managing REO properties will likely get worse before it gets better this year, as the growing trend of enforced foreclosure moratoria leads to property disposition delays. In turn, servicers could face additional costs and more complaints by localities as properties deteriorate.

Sternberg noted that servicers must realize that once they assume an REO property into their inventory “the buck doesn’t stop there.”

“It really doesn’t make any difference that the code violation on this property occurred when the previous mortgagor owned the property and it had been that way for three years and the city is just now getting around to saying-okay we’ve got a lender on the hook so now we’re going to slap a $1,000 a day fine on them until they get it fixed,” Sternberg said. “I can tell you it’s not going to do any good to go back and argue that ‘we didn’t create the problem.’ You have got to get that thing fixed at the earliest possible time in order to mitigate the circumstance and to mitigate your own loss.”

The good news, Sternberg said, is that servicers who communicate with local officials and who express an interest in solving the problem for them will find those officials cooperative.

Robert Klein, CEO of Safeguard Properties, was recently quoted in an article in Managing REO magazine.

Municipalities Get Aggressive with REO

By Jennifer Harmon

Local municipalities across the country are increasing penalties and fining lenders as much as $100 a day for code violations such as for each broken window on an REO home, according to speakers at a panel on vacant property at the Mortgage Bankers Association’s National Servicing Conference in Tampa, Fla., which had 1,873 attendees this year.

Robert Klein, chief executive of Safeguard Properties, a privately held field service company based in Cleveland, said servicers need to make sure their property preservation units communicate with local code enforcement officials at the city and county levels to open up dialogue and prevent this from happening.

“If you won’t listen, they will look for every legal measure they can to inflict some pain,” Mr. Klein told the audience. “We need to see more dialogue with municipalities.”

Because these ordinances are popping up everywhere, asset managers should work with local real estate brokers across the country to determine the specific requirements in different municipalities. Right now, about 600 cities are using some form of ordinance. He said local brokers are able to gather knowledge and counsel lenders on particular laws in their coverage areas.

According to Berry Laws, a partner with Kansas City, Mo.-based Martin, Leigh, Laws and Fritzlen PC, vacant property lawsuits are likely to occur more and more, because these properties cause problems in neighborhoods. “As values go down, crime increases, prostitution goes up, there is increased vandalism, looting of copper pipes, toilets and sinks, and properties are used for crack houses.”

It is a legitimate issue for the city, he described, because the government is concerned about neighborhoods where these properties are depreciating in value by thousands of dollars and apartment values go down. But the more money a city has to spend on taking care of these properties means less funding for local fire departments, police departments and schools, Mr. Laws added. “The liability is on the investor and servicer. Servicers are subject to the fines for these properties. There are a lot of constitutional problems with these requirements,” he said.

In some places like Kansas City, if the borrower defaults on a loan, after 14 days the lender must send someone out to see if the home is occupied. If it is deemed vacant, the lender must register the property and check on that home every month and sometimes every week.

“The lender is required to repair, secure, inspect and maintain these properties,” said Mr. Laws. “They must have someone change the locks, drain the pool, fix the windows. They have to put a sign on the house to tell everyone it is vacant with the contact name and phone number. Basically, ?Come vandalize me.? This advertisement has unintended consequences.”

The task of tallying the different laws all over the country and what each one says is overwhelming and a daunting task for everyone, he added. There are different laws in all 50 states and Puerto Rico, at the city, county and municipal levels. Each ordinance has significant differences that can be burdensome to the servicer. Fines are $1,000 a day in some cities.”

The speakers all agreed that the responsibility and cost of maintaining these properties has shifted from the borrower to the lender because of the time it takes to do a foreclosure.

In California, Mr. Klein said there are now hazard waste removal requirements regarding cleaning chemicals and solutions, specifically Windex. “In California, any waste — for instance, a gallon of paint — must be removed by an environmental company that is licensed to remove it. Your property preservation company can?t do it. You have to hire a waste removal company.”

It could cost as much as $550 to have a bottle of Windex removed from the property by one of these professionals, he said, compared to a fine of $5,000 if the asset manager is caught removing it. “These ordinances are popping up everywhere. In St. Paul, Minn., there is an ordinance that requires lenders to complete total repairs before it will allow an REO sale.”

Panelists discussed how important it is to make sure an REO property looks and smells inviting. Correction action should be taken on even low-value properties in order to dispose of the homes. Cary Sternberg, senior vice president, American Home Mortgage Servicing, Irving, Texas, said servicers are searching for creative and aggressive strategies to dispose of real estate-owned properties while figuring out the best way to preserve the assets.

His company saw an increase from 22,000 to 37,000 REOs in 2008. He said servicers are partnering up with preservation vendors to update the carpet, paint, and if needed, replace the roof on a particular home, in order to make sure it is in “lendable condition” before someone can qualify for a loan. He said third-party sales are becoming more popular to move REO. He said he is not sure about the chance of rental type programs succeeding, because the lender is not set up to be a landlord.

Caroline Reaves, president and chief operating officer, Mortgage Contracting Services, Tampa, said more mid-value and high-end properties are seeing cosmetic enhancements with furniture staging. Lenders are taking a much more active role here, she said.

The panelists also mentioned how home managers are sometimes being used to maintain the REO property and travel from house to house to occupy and maintain the property. This is happening especially on West Coast high-end properties, they said. This can help the homeowner with security issues as well as decrease marketing time, some suggested.

Michael Blair, chief operating officer of servicing, at Franklin Credit Management Corp., Jersey City, N.J., said lenders are looking into renting out foreclosed and REO properties. His company has started a pilot program with renting foreclosed homes.

“Having someone in the home is a lot better than having the property vacant,” he said. “The large concentration of REO inventory is driving the prices up for all lenders with properties sitting there empty. If you make it a rental property and make sure you add the proper amenities, you get people in to do the work, the values come back. Renting is a win-win for everybody. It helps stabilize values in neighborhoods.”

Recently, Paul Carlozzi, field inspector for Safeguard Properties,?led a field ride with a producer from KCET?public television?in Southern California, focusing on Riverside County where foreclosure rates are particularly high.?Accompanying Paul on the field ride was Thomas Fantini, QC field rep for Southern California.

Videos are available on the KCET website:

http://kcet.org/socal/2009/02/the-trashout-squad-1.html

Another video in regards to “trash-outs” and hazardous materials found on work sites:

http://kcet.org/socal/2009/02/household-chemical-dangers-and-trash-outing.html

DSnews.com published an article regarding Safeguard Properties’ new Good Neighbor Door Hanger initiative.

Safeguard Begins Door Hanger Program

Austin Kilgore | 02.02.09

Safeguard Properties is taking a step to improve communication among neighbors and prevent blight in vacant properties by requiring its contractors to place door hangers on the neighboring homes of vacant properties it services beginning Monday.

The “Good Neighbor Door Hanger” has Safeguard’s contact information in the event a neighbor needs to contact the company regarding damage and blight to a REO property.

Vendors received the hangers over the course of the past few weeks, and are instructed to attempt to contact the neighbor before leaving the door hanger. Contractors are required to fill out the door hanger when completing an initial secure or REO initial services order.

In a memo to its contractors, Safeguard said, “Servicers and local governments are partners in fighting blight, maintaining safe neighborhoods, and ensuring properties are maintained.”

Safeguard was mentioned in an article on DSnews.com regarding the MERS initiative for vacant properties.

Calif. City Joins MERS Initiative

Austin Kilgore | 01.09.09

A new vacant property registration ordinance in San Bruno, California will allow lenders and servicers to register their properties on the Mortgage Electronic Registration System (MERS).

San Bruno joins five other cities, three in California, that will begin a pilot program this year to use the MERS to track vacant properties.

Dubbed the MERS Initiative, it is being spearheaded by the Mortgage Bankers Association (MBA) Vacant Property Registration committee, which is chaired by Safeguard Properties CEO Robert Klein.

The committee is working with local municipalities considering vacant property registration ordinances to use the MERS to track properties. By using the system, national lenders and servicers have a consistent format for registering properties, and municipalities can save money and resources by not having to create and maintain their own databases of properties.

A group of mortgage banking industry corporations and groups like the MBA provided the capital to start the MERS program. Municipalities that choose to allow vacant property registration through the site are given free access to it, and are provided with training to navigate the system.

The MERS database currently contains 60 million loans from 2,500 lenders, and is being expanded to handle increased capacity.

Safeguard was mentioned in a report on CNNMoney as a source of employment opportunities in a difficult economy.?

Unemployed – reinvent yourself

There are more ways than one to land your next job, despite the difficult economy. Gerri Willis provides insight

Cleveland.com reported on Safeguard Properties’ upcoming move to new offices in Valley View, Ohio.

Valley View will have new private road, Safeguard Circle, as home for Safeguard Properties

Posted by kburns January 22, 2009 21:29PM

Valley View Village Council has named a private road Safeguard Circle. The road is adjacent to Hub Parkway and will be the new home of Safeguard Properties.

A nationwide company that secures foreclosed properties, Safeguard Properties is moving to Valley View from Brooklyn Heights at the end of the first quarter, possibly by April.

Safeguard Properties was mentioned in an article on Baltimore’s abc2news.com regarding employment opportunities.

Trying to Land a Job?

Trying to land a new job? Believe it or not, there are still some companies hiring!

Here are some ways you can reinvent yourself for your next employer: First, know where the jobs are.

For example, T-mobile is adding about 2000 jobs nationwide in retail and customer service. Safeguard Properties, a firm that manages foreclosed properties, is adding about 1,400 jobs.

Microsoft and Google are also adding jobs, despite laying off in other areas. Second, retraining: consider online classes, just make sure the college is accredited.

Finally, polish your resume.

For free online help click here:?http://careeronestop.org/?

Safeguard Properties was mentioned in an article on American Banker regarding delinquencies in mortgage payments and the trend in foreclosures in 2009.

As Freezes Expire, Foreclosures to Soar

American Banker ?|? Thursday, January 29, 2009

By Kate Berry

Home foreclosures, bottled up for the last few months, could soon explode.

A moratorium that Fannie Mae and Freddie Mac put on foreclosure sales and evictions by their servicers in late November is scheduled to expire next week. Freddie had 5,000 to 6,000 loans headed for foreclosure before the freeze, though some might receive streamlined modifications. Fannie said it had contacted more than 10,000 borrowers and renters before the freeze about the possibility of a property heading for foreclosure.

Moreover, many more option adjustable-rate mortgages are expected to begin “recasting” in the coming months. Since the borrowers will be required to make fully amortizing payments, rather than minimum ones that do not cover interest, their monthly bills will jump, increasing the risk of default.

And rising unemployment cannot help matters for any type of mortgage.

According to First American CoreLogic Inc., 847 alternative-A option ARMs nationwide were recast last month. The data firm expects that figure to reach 1,600 in March – and climb steadily to 11,700 by December.

“There probably will be two more waves of foreclosures coming,” said Mark Carrington, the director of analytical sales and support at the unit of First American Corp. of Santa Ana, Calif.

“When the foreclosure moratoriums end, we’ll see one wave of foreclosures,” he said, and “2009 is going to be the start of the ramp-up of the option ARM loans facing foreclosure.”

Such forecasts assume no increase in government intervention, though an increase has become a much bigger possibility under the new administration. For example, legislation that would let bankruptcy judges rewrite mortgage terms – helping the borrower to avoid foreclosure – is making its way through Congress. (See related story.)

In addition, major lenders such as JPMorgan Chase & Co., Wells Fargo & Co., and Bank of America Corp. have announced stepped-up modification efforts; the very reason for the government-sponsored enterprises’ moratorium was to give servicers time to adopt new modification procedures.

But all other things being equal, the next few months could bring the end of a reprieve.

“Virtually everywhere we’ve seen moratoriums, there is a run-up in foreclosure activity, then a huge drop-off, and a spike back up when the moratorium is over,” said Rick Sharga, a senior vice president at RealtyTrac Inc. in Irvine, Calif.

For example, he said, a law that took effect in California in September has “made it look like foreclosures were settling down.” It requires lenders to contact a delinquent borrower and wait at least 30 days before sending a default notice – the first step in the foreclosure process.

Many servicers waited as long as 90 days to initiate default proceedings, Mr. Sharga said, so some of those foreclosures are only now coming on to the market. “This is masking and causing all of us to understate the severity of the problem.”

As of June 30, Fannie and Freddie owned or guaranteed 373,000 delinquent loans.

Freddie had 151,515 “seriously delinquent” mortgages – meaning they were 90 days or more past due – as of Sept. 30.

Other changes made by the GSEs last year stretched out the foreclosure process and removed incentives for servicers to foreclose quickly.

For example, Freddie stretched its foreclosure time line in 21 states, including California, to 300 days from a borrower’s last payment and 150 days from the initiation of foreclosure.

“Right now, between moratoriums that were enacted last year and the pure volume of foreclosures, time lines could be double the standard of a year ago,” said John Anderson, an executive vice president at Clayton Services Inc. in Shelton, Conn., which owns Quantum, a servicer of delinquent loans.

Of the roughly $200 billion of option ARMs outstanding, Fitch Inc. expects roughly $29 billion, or about 16%, to recast this year and an additional $67 billion to recast next year.

Normally, option ARMs recast five years after origination, but Mr. Carrington said many borrowers have been making only the minimum payment, so the balance has grown larger than what the home was worth at the time of origination, triggering early recasts.

“For borrowers that chose to make minimum payments, they hit a ceiling faster than five years, and that’s been happening now,” he said.

Robert Klein, the founder and chief executive of Safeguard Properties Inc., a Cleveland firm that lenders hire to manage foreclosed properties, said the unemployment rate is “a bigger concern” than foreclosure moratoriums and option ARM recasts.

Safeguard has noticed a steady 20% monthly increase in 45-day delinquencies, Mr. Klein said. Many banks and servicers that used to wait 120 days to inspect a property after a borrower went delinquent are now starting the process at 45 days.

Last month Safeguard inspected 860,000 properties nationwide in which borrowers were at least 45 days delinquent, he said.

“The unemployment rate is what scares me, because people who lose their jobs and have no equity in their homes cannot refinance,” Mr. Klein said. “Now we’re going to see foreclosures start to really hit the prime housing market.”