Safeguard Properties

Cleveland Heights May Explore Bond Ordinance

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Updated 6/7/18: Cleveland.com published an article titled Cleveland Heights council still reviewing idea of foreclosure bonds.

Link to article

Additional Resources:

Cleveland Heights City Council ( May 29 meeting policy/administrative analysis; June 4 meeting video)

Legislation Update
January 24, 2018

Blog Excerpt:

In other business at the Jan. 16 meeting, City Council heard from residents Gary Benjamin and Melody Hart on behalf of the Greater Cleveland Congregations organization, renewing their call for a local “foreclosure bond” ordinance.

Elsewhere, similar legislation requires that banks post the foreclosure bond to pay for maintenance of vacated homes.

Benjamin noted that of the estimated 200 foreclosed homes in Cleveland Heights, roughly half may be in the Noble neighborhood, driving down surrounding property values as they continue to deteriorate.

Mayor Carol Roe said she has supported the legislative proposal in the past, put forward by her predecessor on council, Jeff Coryell, in 2015.

She added that while $10,000 has been the historical standard for the foreclosure bond, the city may want to look at $12,000 to $15,000, given the age of Cleveland Heights’ housing stock.

Source: The Plain Dealer (full blog)

Clearboarding Bills Proposed in Maryland and New York

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Legislation Update
February 13, 2018

Maryland
HB 1079

Status: The bill was introduced and had its first reading in the Environment and Transportation Committee on February 7.

Synopsis: Requiring a building or housing code adopted by Frederick County or Prince George’s County to prohibit the use of plywood to board or secure the windows or doors of an abandoned or unsafe residential property and require the use of a certain polycarbonate material to board or secure the windows or doors of a certain property.

Source: Maryland General Assembly (HB 1079 full text)

New York
A6806A

Status: Originally introduced in March 2017, the bill was referred to the Judiciary Committee on January 3.

Source: New York State Senate

Additional Resource:

HVVN.com (Skoufis Hosts Demonstration to Clean Up Zombie Property Blight)

Zombie Homes: The Problem That Just Won?t Die

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Industry Update
January 8, 2018

The issue of so-called “zombie homes” is a problem for any major city. “Zombie homes” is a colorful name for an old problem, and one that continues to be widespread as the nation gains more distance from the housing crisis and the Great Recession. Zombie homes are created when the foreclosure process begins, the homeowner moves out, but then the foreclosure is canceled for one reason or another, leaving the home unoccupied—and often falling into disrepair. The issue—and misunderstandings surrounded it—is highlighted in a new story about how Portland, Oregon, is tackling the problem.

The Portland Tribune reported recently that Portland Mayor Ted Wheeler has reversed a policy put in place by his predecessor that was designed to crack down on zombie homes, threatening foreclosure on the properties in order either to force landlords to attend to the homes’ upkeep or get them into different hands. However, while former Mayor Charlie Hales pushed the Portland City Council to crack down on zombie properties, Wheeler considers the problem less of a priority.

Wheeler told the Tribune, “The obstacles for government to take away someone’s property are formidable. It’s a very expensive, multi-year process. I’m not sure that’s the best use of our resources.”

Of course, the problem with typical zombie properties is that there isn’t anyone in the house to be forced out. With the properties trapped in something like limbo, it’s hard to find a good solution for any of the parties involved, from the bank or mortgage company left holding the property, to the city governments tasked with fighting urban blight. As evidenced in Portland, even when one party comes up with a plan to address the issue, that plan can crumble in the wake of budget cuts or political change.

Would Hales’ plan have worked in the longer term? According to the Tribune, Portland only used the threat of foreclosure to force landlords to take care of their derelict properties in 10 cases during the previous 18 months. Of those 10 properties, the Tribune reports that “Landlords for eight of them paid off the liens before the auctions were set. The ninth was paid off just before the auction. The 10th was paid off after it failed to sell at the first auction but before the second auction was held.”

With Wheeler reversing course on Hales’ policy, the city is now effectively back where it was before that policy was put in place … and the city’s zombie homes still remain.

Several American cities have been trying to fast-track foreclosures in recent years as a means of combating blight and zombie properties. Fast-track foreclosure laws are already on the books in Ohio and Maryland, with states such as Illinois, Pennsylvania, and New York possibly following suit. Some municipalities are also trying to combat the individual symptoms of blight, such as in the case of Ohio’s banning of the use of plywood on vacant properties. In November 2016, Fannie Mae announced it would allow mortgage servicers to use clearboarding on vacant homes in pre-foreclosure, striking another blow against one of the tell-tale visual signs of zombie homes and urban blight.

In part three of a three-part series earlier this year, Robert Klein, Founder and Chairman of Safeguard Properties and SecureView, told DS News, “It’s all about keeping people in their homes as long as possible, but, once abandoned, a house becomes a liability. Fast-tracking enables the mortgage servicer to get possession of the property before it deteriorates. This directly leads to on-time conveyance and faster rehab and sale.”

Fast-tracking foreclosures—or even threatening to do so—can be one effective way to combat the zombie home plague, but evidenced by Portland’s problems, it isn’t always a politically popular approach. 
 
Source: DS News

What Will Happen to All the Abandoned Homes in Puerto Rico

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Industry Update
January 25, 2018
 
By the end of November, more than 208,000 people made their way from the Hurricane-ravaged island of Puerto Rico to Florida. As many as 750,000 people are expected to leave Puerto Rico over the next four years. Many of them left — and will leave — their homes behind.

What will happen to the houses left behind depends on whether the house has been paid off or whether the owners are still making mortgage payments. If the house still has a mortgage and payments on that mortgage are not being made, then the home will be foreclosed on, according to Ricardo Ramos-González, coordinator of a consumer legal aid clinic at the University of Puerto Rico School of Law.

“Any abandoned property that has a mortgage will be subject to a judicial foreclosure process. Until then, the ownership will be retained by its lawful owners,” he said. “Then if they are finally foreclosed, it will become a real estate owned (REO) property of the particular bank. There is no special process to deal with that situation.”

The real fall out from Hurricane Maria, which made landfall on Sept. 20, has yet to be determined. After the Hurricane passed, banks and the federal government imposed a three-month moratorium during which foreclosures, late fees and credit scores reporting was suspended. While banks have ended their moratorium this month, the federal government has extended its moratorium until March.

Even before some of the moratoriums came to an end, there was widespread confusion about who qualified. Some homeowners assumed that moratoriums were extended to everyone. They were not.

More than 20,500 people who received moratoriums from Bank Popular — Puerto Rico’s largest bank — saw them expire in December and January. The bank is now ready to start collecting payments again, even if some parts of the island are still without power, thousands of people have lost their jobs and about 30 percent of small- and medium-sized businesses are still closed.

“Those clients that truly are not responding to the bank’s letters are those who really will be at risk of facing a foreclosure,” Jose Teruel, first vice president of the consumer credit services division at Banco Popular, told the Associated Press.

Threat of foreclosure is nothing new for many Puerto Ricans.

The Puerto Rico foreclosure crisis was years in the making

Even before Hurricane Maria made landfall, Puerto Rico was facing a foreclosure crisis. The island had a mortgage delinquency rate that was three times the national average. About 33,000 homes were foreclosed from 2009 to 2016. In 2016, a record high of 5,424 homes were foreclosed, according to NBC. On an island with 3.4 million people, an average of 14 families were losing their home every day to foreclosures.

“The foreclosure problem that Puerto Rico has experienced over the past few years is actually worse than what we saw during the height of the foreclosure crisis nationwide,” Daren Blomquist, senior vice president with Attom Data solutions, a U.S. housing data provider, told NBC in June.

Then came Hurricane Maria.

The troika: Harvey, Irma, Maria

Hurricane Maria was not the only storm to leave a wake of damaged and abandoned properties in its wake last year. By the end of 2017, there were 142,700 severely delinquent loans linked to last year’s storms — 102,500 in Florida and Georgia are attributed to Hurricane Irma while another 40,200 in Texas are said to be result of Hurricane Harvey, according to Black Knight, a financial data firm that collects and monitors monthly mortgage data. These delinquent loans represent 20 percent of all such delinquencies nationwide.

These numbers have been climbing every month since the storms hit. That should not be a surprise considering that according to Black Knight as many as 4.8 million mortgaged properties were in the path of Hurricanes Harvey, Irma and Maria. Their unpaid principal balance was nearly $746 billion, CNN reported in November.

Abandoned homes that are paid off

However, not all homes that have been left behind come with a mortgage. Some have already been paid off. In that case, its owners would still be required to pay local property taxes even if the home sits empty. What happens when owners do not pay their property taxes can differ from state to state.

The most relevant case study here would be what happened in Louisiana after Hurricane Katrina. It’s been over 12 years since the storm hit, yet many homes remain abandoned and damaged. These houses are often referred to as “blighted.” One of the reasons why the local government struggled to deal with these properties is because it actually cannot just seize them and sell them off.

“Before the city can sell a tax-delinquent property, state law requires the public and all owners to be notified and mandates waiting periods of up to three years. During that time, an owner could get back in the game by making a minimal tax payment,” according to a Reuters’ 2015 report on the 10 anniversary of the storm.

If the house is not tax-delinquent, the officials would have to track down the owner and try to purchase the house. Many of the blighted houses in New Orleans that had been paid off were passed down from generation to generation. Some of them are now owned by multiple heirs. The New Orleans Redevelopment Authority has been tracking down owners in an effort to purchase the homes from them and sell them at auctions or to neighbors interested in expanding their property.

It is too early to tell if a similar situation might occur in Puerto Rico.

Source: Marketplace

Upstate New York Cities Collaborate with Tech to Combat Blight

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Industry Update
January 24, 2018

Four local governments have partnered with the Center for Technology in Government to develop a platform that will share data and stem the rising tide of blighted buildings.

Schenectady, N.Y., like many cities across the country, has struggled with blighted buildings. There are between 900 and 1,000 of them in the city of roughly 66,000 residents, and such a high number will have a troubling impact on economic development and property values, while also presenting a safety hazard for other properties nearby, said John Coluccio, Schenectady’s signal superintendent.

Squatters in these abandoned houses often start fires that can spread. Demolishing the structures, however, is also a costly prospect. Basically, for local government the best course of action is to reduce the number of buildings that become blighted at all.

To do this, Schenectady has joined with a number of other cities in upstate New York, as well as with a key academic partner, on a collaborative project, the roots of which date back to 2015. The other cities are Amsterdam, Gloversville and Troy, and the partner is the University of Albany’s Center for Technology in Government. This cooperative work is part of a pilot program that aims to share critical code-enforcement data that the participating governments are hopeful will enable them to take a more proactive approach to the problem.

All of these cities collect code enforcement data — such as names, contact information and addresses for building owners — that can be useful, if shared and deployed correctly.

“Data is really important,” Coluccio said, “but we don’t want to be able to just collect it. We want to be able to collect it and use it, and to use it properly.”

This means setting up a system to share data about blighted buildings between jurisdictions. That way, when a property management company begins to let buildings become unusable, the different cities can compare information and do a better job holding the company accountable. Coluccio said it may seem simple, but currently, neighboring cities throughout the region don’t have any formal way to share vital information.

The participating cities are working with vendors to build software, and hope to have most of the local governments online together by the end of the summer. What this will likely be is a dashboard for code enforcement issues. Another priority is finding set terms for what constitutes blighted buildings and making sure that all the cities share them.

A large portion of the work is being funded by a grant from the New York State Department of State’s Local Government Efficiency Program, which recognized the need for it as well as its innovative nature, said Meghan Cook, program director with the Center for Technology in Government. The center largely played an advisory role in this project, helping to launch the collaborative, and Cook said the cities may be working on their own by 2019.

Derek Werthmuller, director of innovation with CTG, said the goal is “to use this sharing resource as a way to learn best practices and not reinvent the wheel.”

The hope among all those involved is that the work being done in upstate New York can eventually be replicated throughout the country.

“We believe that what we’re doing with code enforcement could be expanded to other areas,” Coluccio said. “We could add police and fire information, or other different issues so we could look from community to community and compare.”

Source: Government Technology

Task Force Suggests New, Bold Ideas to Fix Albuquerque?s Vacant Home Problem

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Industry Update
January 19, 2018

ALBUQUERQUE, N.M. (KRQE) – A new set of ideas the city is considering may help solve Albuquerque’s longstanding problem with vacant and abandoned homes.

A recently formed Albuquerque city task force on vacant and abandoned homes has now proposed two dozen recommendations for ways that the city government could address problems linked to abandoned, vacant and substandard properties.

READ: Albuquerque Vacant & Abandoned Houses Task Force Report

An estimated 1,300 vacant homes are spread throughout Albuquerque. Often times, those homes draw transient populations and other problems like drug use, fires and other crime.

Councilor Diane Gibson spearheaded the creation of the task force in 2017. By October, the so-called “Vacant & Abandoned Houses Task Force” began meeting.

After eight meetings, they produced a report with recommendations that was delivered to city councilors on Wednesday, Jan. 17.

A co-chair of the South Broadway Neighborhood Association near Avenida Cesar Chavez and Broadway Boulevard, Frances Armijo is very familiar with the problem of vacant homes in her neighborhood.

“These problems have lingered forever,” said Armijo.

She and fellow residents recently surveyed the neighborhood, finding 30 vacant and abandoned homes. Some of them have been empty for years, drawing unwanted behavior.

“You can’t encourage people to move into your neighborhood when you have this sort of thing going on,” said Armijo.

Armijo says the neighborhood association has tried several different avenues to get someone to address various neighborhood properties, but with no luck.

“We’ve tried to write some of the owners and try to get them to cooperate, clean up their properties,” said Armijo.

One property she points to near the 1500 block on John Street has been vacant for 20 years, even caught on fire. Yet, the property has never changed.

“We’re not getting any help from anyone, the owners, the city, the state,” said Armijo. “Who takes responsibility for this property?”

Vacant homes are not just a problem of the South Broadway neighborhood. It is a city-wide issue. In an August 2017 interview with KRQE News 13, Albuquerque’s Planning Department Deputy Director Brennon Williams estimated there were roughly 3,000 vacant city homes, however, the city only has around 1,300 it knows of for sure.

The “Vacant & Abandoned Houses Task Force” is hoping to help address the problem with its suggestions. Their new report suggests 24 different ideas.

One of the biggest ideas is for the city to create a so-called “land bank.” That could essentially function as an entity designed to buy up vacant properties from “do-nothing owners,” and sell the homes to people who are actually interested.

Other ideas include revising the city’s “Uniform Housing Code” to allow for imposing civil penalties instead of criminal penalties.

The task force has also suggested the city get neighborhoods to do “vacant home” sweeps. Another idea is to create a website and hotline to make vacant home reporting easier. They also want to see the city create a publicly accessible map that charts the city’s vacant homes.

KRQE News 13 discussed the task force’s report and ideas with Armijo on Friday.

“Well, I’m all for that, we’re definitely for that,” said Armijo of the idea of a “land bank.”

Armijo says a successful roll-out of some of the suggested recommendations could help revitalize her neighborhood.

“We’d like people to build homes and stay in our neighborhood, that’s important,” said Armijo.

The task force has told Albuquerque City Council that it intends to keep meeting to see if they can help make some of these ideas reality. So far, there is no timetable on when any changes could occur.

Source: Government Technology

Residential Redemption Laws Proposed in Two States

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Legislation Update
January 30, 2018

Alabama
HB 90

Title: Residential property, foreclosure, right-of-redemption, time period to redeem further provided for, notice requirement actions, affirmative defense, provided for, time frame for notice requirement actions, further provided for, Sec. 6-5-248 am’d.

Status: The bill is pending a third reading on day 9 Favorable from Banking and Insurance.

Source: Alabama Legislature (HB 90 full text)

Iowa
HSB 531

Title: An Act relating to shortening the periods of time for redeeming real property from foreclosure and delaying sale of foreclosed property.

Status: The bill was recommended for passage by the Commerce Subcommittee on January 23.

Source: Iowa Legislature (HSB 531 full text)

SSB 3053

Title: An Act relating to shortening the periods of time for redeeming real property from foreclosure and delaying sale of foreclosed property.

Status: The bill was recommended for passage by the Commerce Subcommittee on January 30.

Source: Iowa Legislature (SSB 3053 full text)

Rental Companies Sue Over Detroit Inspection Ordinance

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Industry Update
January 15, 2018

Two rental property companies have filed a federal lawsuit against Detroit challenging the city’s rental inspection ordinance, saying it violates their rights against “unreasonable searches and seizures.”

MS Rentals, a landlord in Gibraltar, and Garner Properties & Management, a Taylor-based property management company, argued the ordinance violates property owners’ rights by allowing city inspectors to enter their property without a warrant.

They said the ordinance also coerces property owners to allow the inspections because, if they refuse, they could face fines, liens, criminal charges and denial of a certificate of compliance. There is no venue for landlords to object to a city inspection and no way the city can get a warrant for one, the lawsuit alleges.

“Plaintiffs and those similarly situated are denied their constitutional right to the use and income generated from their real property if they fail to permit the City’s warrantless searches and as such have been damaged,” the lawsuit reads.
Under current law, housing units are supposed to be registered and have passed city inspections by obtaining a certificate of compliance before they can be rented out. City officials say they have let most landlords ignore the rules for more than a decade but have pledged a crackdown.

Detroit officials said Monday that their rental inspection regulations don’t violate landlords’ constitutional rights.

“Rental property owners have a particular obligation to ensure that the homes they rent are safe for families,” said Dave Bell, director of the city’s Buildings, Safety Engineering & Environmental Department, in an emailed statement. “Like virtually every city in the country, Detroit requires periodic inspections to ensure that property owners abide by these requirements. The United States Supreme Court has repeatedly confirmed that such laws are constitutional. We are confident the court here will do the same.”

Aaron Cox, an attorney for the property companies, said he’s involved in at least four similar lawsuits filed against Metro Detroit communities that are pending. In the case against Detroit, they are seeking an injunction from a federal judge to prevent the city from continuing to enforce the ordinance.

MS Rentals and Garner Properties also want to turn their legal complaint into a class-action lawsuit on behalf of all Detroit landlords who paid rental registration fees or those who have been denied a certificate of compliance since 2012.

They argued the city is more interested in raising money through the ordinance than in preserving the safety of residents. They said the city has wrongfully collected “millions of dollars in unlawful registration and inspection fees.”

The two companies are asking for an unspecified amount in damages and to be reimbursed for their attorney fees.

MS Rentals, which owns property at 9224 Fielding, said a city official entered the property without permission in June 2014. At the time, the property was vacant and not registered as a rental property, according to the lawsuit.
MS Rentals was issued a ticket for failing to obtain a certificate of compliance and had to pay a fine, it said.

Garner Properties, which owns property at 14920 Faust, said the site received a ticket for failing to obtain a certificate of compliance in September 2015, according to the lawsuit. Garner Properties said the only reason it received a ticket was because it refused to allow the city to enter the property for inspection.

The company challenged the ticket and it was dismissed, according to the lawsuit.

Wayne State University law professor Peter Henning said, in general, the federal Supreme Court had upheld warrantless searches of “highly regulated” businesses by government, such as restaurant inspections, when penalties are civil infractions. But law enforcement needs warrants to enter properties when criminal charges could result.

In 2016, just 4,174 Detroit addresses were registered and inspected, in a city the U.S. Census Bureau estimates as having 140,000 rental units.

As part of a year-long investigation published Oct. 5-6, The News reported that in 2015, only 1 of every 13 eviction cases was filed on an address legally registered with the city.

The News found families facing eviction in homes that were never inspected by the city and had numerous problems: lack of heat in the winter, hazardous electric systems, missing windows, infested with mice and one with a sewage-filled basement.

The City Council moved in late October to update its rental regulations, including enacting rules that stop landlords from collecting rent if they haven’t passed city inspections. That is set to take affect in early 2018 but city officials haven’t announced an exact time line.

Source: The Detroit News

Pertinent Bills Advance in Massachusetts

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Legislation Update
January 31, 2017

Massachusetts
H.1109

Title: An Act relative to vacant and abandoned property in the Commonwealth

Description: Would “authorize municipalities to implement an abandoned property registration and security program“.

Status: The bill had a second reading and was ordered for a third on January 31.

Source: Massachusetts Legislature (H.1109 full text)

H.2957

Title: An Act to require banks, lending institutions, mortgage companies or sub lenders to file with the registry of deeds in each county within thirty days of mortgage sales and/or foreclosures of property

Description: Would require “certain financial institutions to file sale and foreclosure information with registries of deeds.”

Status: The bill was referred to the Committee on Financial Services on January 23.

Source: Massachusetts Legislature (H.2957 full text)

Ohio Courts Could Change Course for Chapter 13 Bankruptcy

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Industry Update
January 29, 2018

Editor’s note: This story was originally featured in the January issue of DS News, out now.

In a Chapter 13 bankruptcy, debtors have the ability to modify their mortgages. A modification is generally called a “cram down” and it occurs when a mortgage claim is bifurcated into a secured portion equal to the current market value of the property and the remainder of the claim is deemed unsecured debt. A cram down usually happens with an investment property or second home because mortgage creditors are protected from modification during a Chapter 13 bankruptcy proceeding if it is a first lien on the primary residence. Even if the property is underwater, that first lien remains fully secured through the Chapter 13 bankruptcy proceeding as long as the debtors resided in the property at the time of filing (11 USC §1322(b)(2)).

However, there is currently a worrisome string of case law that is allowing for a cram down on primary residences, starting with the In Re Stevens, Case 14-41709, in the Northern District of Ohio with Judge Kay Woods (Youngstown). Adversary case 14-41709 styled as Daniel E. Stevens, Jr. v. SunTrust Mortgage, Inc. was filed and SunTrust promptly filed a motion to dismiss the case based on violation of 11 USC §1322(b)(2). In a surprising opinion in response to the motion, Judge Woods indicated that the mortgage took more than just an interest in the property and therefore, the protection of 11 USC §1322(b) (2) did not apply. This additional property was the pledge for escrow funds found in the mortgage. The position caused great alarm among creditors’ attorneys as most standard mortgage forms in Ohio contain the escrow provision cited in Judge Woods’ opinion. This case was settled rather than litigated, but the Judge’s opinion clearly laid out her position and has been discussed aggressively by debtors’ attorneys in Ohio as a way to get a Chapter 13 cram down provision on a primary residence.

This opinion traveled south and the next case to explore this issue was In Re Lindsey, Case 15-10255 in the Southern District of Ohio that was assigned to Judge Jeffrey P. Hopkins (Cincinnati).  An adversary proceeding was filed, Randall Lindsey v. Beneficial Financial I, Inc. as Case 15-01025, and Beneficial filed a motion to dismiss. Judge Hopkins issued an order denying the motion to dismiss and indicated that he agreed with Judge Woods. Judge Buchanan (Cincinnati) agreed with this same position in the In Re Eldridge, Case 15-13881 in the Southern District of Ohio.

While In Re Lindsey was being decided, a second case came out of the Northern District of Ohio that was extremely favorable to mortgage creditors. In Re Capretta, Case 15-11057 (Judge Arthur I. Harris, Cleveland) was similar in fact to In Re Stevens. Judge Harris denied confirmation of the plan and issued an opinion outlining why a primary cram down was not proper and that Judge Woods was incorrect. Judge Harris states that allowing for primary cram down was against the legislative intent of the code section.

As of this date, every single case with cram down provisions in the plan pending before the court has been settled, usually allowing bifurcation of the claim or coming up with another solution agreeable to parties. At this point, a secured creditor would need to make the decision to allow the case to be confirmed over objection and appeal the case to the higher courts to challenge the issue. Judge Harris laid the groundwork for an excellent issue to appeal in the 6th Circuit so there can be final clarity on this issue, rather than allowing debtors to use these lines of cases as a bargaining tool to get a cram down when it is not warranted.

LeAnn E. Covey is VP of the Bankruptcy Loss Mitigation Departments at Clunk, Hoose Co. LPA. Covey has been with the firm for 15 years and has overseen various departments in the office.

Source: DS News