Safeguard Properties

Senators Klein & Bailey, Mayor Thomas, Unveil ?Nightmare Neighbor Task Force? to Identify & Take Action on Abandoned Properties in Mount Vernon

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Industry Update
October 16, 2017

New report shows the adverse effect of bank-owned, zombie and abandoned properties on home values in Mount Vernon

Mount Vernon, NY — Senators Jeff Klein and Jamaal Bailey, joined by Mount Vernon Mayor Richard Thomas, unveiled the ‘Nightmare Neighbor Task Force’ and new legislation to address the effects of bank-owned, zombie and abandoned properties in Mount Vernon.

The officials also released a new investigative report, “Nightmare Neighbors: How Badly Maintained Homes Damage Neighborhoods,” detailing the negative impact bank-owned, zombie and abandoned properties have on neighborhood home values.

“The foreclosure crisis continues to negatively impact neighborhoods in Mount Vernon. We have made great strides in eliminating zombie properties and holding financial institutions liable for the properties they own, however there is still more to do. This joint task force and legislation will help Mount Vernon home owners maintain their home values and quality of life,” said Senator Klein.

“According to a report compiled by Senator Klein and I, the City of Mount Vernon has suffered significant depreciation in property value, as well as a loss of much needed tax revenue due to the prevalence of zombie, foreclosed or abandoned properties in the city. Our task force, along with residents and leaders of this community will be vitally important in highlighting these properties and restoring these homes and neighborhoods accordingly. I want to thank Senator Klein for all his work on this issue, and with new legislation; we will be able to hold banks even more accountable for properties they own, and most importantly, held accountable in the communities that they do business in.,” said Senator Bailey.

“We must slay these zombie structures that are haunting Mount Vernon and eating away at property values. We know how dangerous these buildings can be but as Senator Klein and Bailey clearly show, the effect on our property values is unacceptable. Even before I took office, I advocated to the City Council that we allocate funds to tear these zombies down and invest in building Mount Vernon up.  Mount Vernon homeowners have lost millions to these eyesores and it’s time for that to stop. This is why my administration invested over $900,000 in rehabbing homes, reclaiming these abandoned eyesores, and seeing new homes rise again. This is the recipe for revitalization, and the proposed legislation will provide an essential ingredient for neighborhood transformation. We are encouraged by Senator Klein and Bailey’s advocacy for cleaning up Mount Vernon and I urge my colleagues in government to join us in tearing these structures down to build a new American dream.,” said Mayor Thomas.

In the fall of 2017, the offices of Senators Jeff Klein and Jamaal Bailey conducted a study to determine how bank-owned, zombie and abandoned properties in Mount Vernon affected the surrounding property values. In doing so, staff members discovered numerous properties that appeared abandoned, however weren’t identified as zombie houses through the Department of Financial Services (DFS) registry or bank-owned through the Office of the Assessor for the City of Mount Vernon.

In order to better keep track of any vacant properties, whether it be a zombie home, bank-owned home or an abandoned home, the two offices unveiled a new joint Nightmare Neighbor Task Force. To better track vacant homes throughout the city, constituents can call into either office to report them. Both offices will identify the owner, remind them of the duty to maintain under New York State law and work to clean up each property. If that property is not cleaned up, the offices will work with the Mayor of Mount Vernon and his administration to appropriately fine those responsible for maintenance and remediate the property and seek reimbursements.

Based on the office’s findings of bank-owned, publicly listed zombie properties and abandoned properties, which are vacant homes with an unknown owner, the offices released a shocking report, “Nightmare Neighbors: How Badly Maintained Homes Damage Neighborhoods,” which detailed how each type of property drastically depreciates the value or surrounding homes.

The investigation uncovered 21 bank-owned properties in Mount Vernon that impacted 764 surrounding homes for a total depreciation value of $3.5 million. The ten zombie properties identified affected 396 nearby homes, causing a combined $1.7 million in depreciation. Lastly, the six abandoned properties accounted for a total loss of $1.04 million. The abandoned properties included in this report are homes that were observed to be vacant and in disrepair through site visits.

In order to combat the blight of bank-owned, zombie and abandoned homes, and to ensure the responsible owner maintains the property, Senators Klein and Bailey proposed new legislation to tackle the issue. Under existing New York State Law, banks are required to register pre-foreclosed zombie properties into the DFS registry. This is a critical tool for local governments, as they can easily locate the owner of neglected zombie property to enforce their duty to maintain. The officials proposed new legislation to expand the tracking tool to include all post-foreclosure bank-owned properties into the DFS registry, enabling local governments to track all bank-owned properties, both pre and post-foreclosure.

A separate proposal would expand the existing $500 fine banks incur from local municipalities or DFS when they fail to maintain zombie properties. Under the new proposal, even post-foreclosure bank-owned properties could be penalized $500 per day for failure to maintain. The banks would also be fined for failing to register their post-foreclosed properties.

The third component of the legislative solution will be to advocate for $5 million for DFS in the upcoming state budget. This funding would enable localities to hire code enforcement officers to track vacant and abandoned properties and monitor the bank’s compliance with the 2009 and 2016 laws. The money could also be used to hire attorneys to bring enforcement actions and fines against the banks for lack of compliance. DFS would also be responsible to step up their enforcement of these zombie and bank-owned homes.

Source: Office of New York Senator Jeffrey D. Klein (full news release)

Additional Resource:

New York State Senate (Nightmare Neighbors: How Badly Maintained Homes Damage Neighborhoods full report)

Irma Affected More Than 90% of Florida’s Mortgaged Properties

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Industry Update
September 18, 2017

More than 90% of all mortgaged properties in Florida are in a FEMA-designated disaster area following Hurricane Irma, nearly three times the number impacted by Hurricane Harvey, according to Black Knight.

“While the total extent of the damage from Hurricane Irma is still being determined, it is clear that the size and scope of the disaster is immense,” Ben Graboske, Black Knight data & analytics executive vice president, said in a press release.

“Indeed, in terms of the number of mortgaged properties and their associated unpaid principal balances, Irma significantly outpaces even the number of borrowers impacted by Hurricane Harvey.”

“More than 3.1 million properties are now included in FEMA-designated Irma disaster areas, representing approximately $517 billion in unpaid principal balances. In comparison, Harvey-related disaster areas held 1.18 million properties — more than twice as many as with Hurricane Katrina in 2005 — with a combined unpaid principal balance of $179 billion,” Graboske said.

There were 456,000 mortgaged properties in the Hurricane Katrina disaster area, with an unpaid principal balance of $46 billion.

Over one-quarter of the mortgage borrowers whose properties were in areas affected by Hurricane Harvey could miss at least one loan payment over the next four months, Black Knight previously said.

That analysis was based on the experience following Hurricane Katrina, where like Hurricane Harvey, the majority of the damage was flood related. Black Knight did not do a similar analysis with Irma because most of the damage was wind-related, a Black Knight spokesman explained.

One bright spot for mortgage lenders is that Irma did not directly pass over Puerto Rico and therefore did not cause the level of damage it did on other Caribbean islands.

“From a mortgage performance perspective, this was particularly good news, as delinquencies there were already quite high leading up to the storm. At more than 10%, Puerto Rico’s delinquency rate is nearly three times that of the U.S. average, as is its 5.8% serious delinquency rate,” said Graboske.

“In contrast, the disaster areas declared in Florida have starting delinquency rates below the national average, providing more than a glimmer of optimism as we move forward.”
 
Source: National Mortgage News

Additional Resources:

Safeguard Properties (Hurricane Irma All Client Alert summary page)

Safeguard Properties (Hurricane Maria All Client Alert summary page)

Insurance Companies Accused of Misguiding Claimants

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Industry Update
September 15, 2017

In the wake of Hurricane Irma, several attorneys and public adjusters who represent insurance policyholders are alleging that insurance companies and their agents are advising policyholders not to hire attorneys and public adjusters, an action that is not permitted under state law.

“In two hours yesterday we received three reports [saying a]policyholder was told not to hire a public adjuster or an attorney,” said Nancy Dominguez, managing director of the Florida Association of Public Insurance Adjusters. “Insurance companies are not supposed to be telling people not to hire a public adjuster or an attorney.”

Nevertheless, policyholders are being told that doing so will delay their claim, or that the lawyers and adjusters are “just going to take your money,” Dominguez said.

Florida state codes restrict adjusters from advising insurance policyholders not to seek the advice of an attorney or public adjuster. A public adjuster handles claims and advocates for the policyholder in appraising and negotiating an insurance claim, while a company or independent adjuster represents the interests of an insurance company.

Dominguez said insurance agents and brokers have incentives to keep the ratio of claims to policy premiums low. Agents get bonuses for having lower loss ratios, Dominguez said.

One of the policyholders who was advised to avoid representation was a public adjuster calling in his own claim. Another was a former client of Daniel Alvarez, a partner at Property and Casualty Law Group in Kendall. The client said he had called his insurance company, Heritage Insurance, to report that the storm had taken the crest of his roof and knocked a tree on his house and car, bending the fence of his Kendall home. The client said the insurance company told him he didn’t need an attorney or public adjuster.

Dominguez said she emailed a complaint to the Division of Financial Services, and on Friday received a call from a representative of Heritage Insurance who said the company does not instruct its call centers to advise people against hiring public adjusters. The representative asked for details about the call and promised to address the issue with the employee.

Tony Tinelli, a name partner at Mase Tinelli who represented insurance companies until switching to plaintiff work last year, said he handled thousands of claims on behalf of insurance companies that were underpaid or improperly applied exclusions. The policyholders ended up hiring public adjusters and attorneys “because they were being paid $200 to repair a roof that needed to be replaced,” he said, adding that, in hindsight, they would have been better off hiring them sooner.

“There’s a difference between telling people not to hire someone and [telling them] they don’t need to hire someone,” said David Murray, a founding partner at Danahy & Murray in Tampa. “It’s all in the delivery.”

He said policyholders often want to discuss the damage with a public adjuster or lawyer before filing a claim with their insurance company so they can determine whether the damage exceeds their deductible. They also don’t want to file a claim that will only serve to count against them in the future, as policyholders with more than two claims in three years, or three claims in five years may not be able to get insurance with some of the major insurance carriers, he said.

Insurance companies are quickly contacting policyholders via recorded messages and emails and inquiring if the policyholder wants to file a claim, in part so they can be in touch with the policyholder before they have had contact with an attorney or public adjuster who would advise them of their claim rights, Murray said.

Stephen Marino Jr., a shareholder at Ver Ploeg & Lumpkin in Miami who has represented storm-damaged law firms in litigation against insurance companies, said he would not be surprised to learn that insurance companies have told people to avoid representation. There have been plenty of instances over the years when insurance companies tried to steer people away from representation that would level the playing field between the insurance company and the claimant.

“The insurance company has an obligation to fairly evaluate and pay claims, and insurance companies hire claim professionals to do that,” Marino said. “It’s only fair, particularly in complex or sophisticated claims, for the policyholder to have a claim professional advocating their position. It would seem to me to be inconsistent with an insurance adjuster’s ethical obligations to advise a policyholder that they should not obtain independent advice or representation.”

Source: Daily Business Review

Additional Resource:

Safeguard Properties (Hurricane Irma All Client Alert summary page)

NMSA Calls for Clarification of the Definition of Robocalls

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Industry Update
August 1, 2017

The National Mortgage Servicing Association (NMSA) issued commentary on Monday to the Federal Communications Commission (FCC) on a Notice of Proposed Rule Making and Notice of Inquiry in regard to preventing illegal Robocalls.

In its official statement, the NMSA applauds the FCC’s desire to prevent Robocalls made by servicers, but urges the commission to go one step further by clarifying the definition. Currently, the FCC defines Robocalls by referring to a previously proposed description set forward by the “Robocall Strike Force,” which was established at the request of former Chairman Wheeler in 2016:

“…an ‘illegal robocall’ is one that violates the requirements of the Telephone Consumer Protection Act of 1991, the related FCC regulations implementing the Act, or the Telemarketing Sales Rule, as well as any call made for the purpose of defrauding the customer, as prohibited under a variety of federal and state laws and regulations…”

It is the position of the NMSA that ambiguity in the language and lack of defining terminology leaves open the possibility of inconsistency. The organization further urges the FCC to adopt language that clearly defines a Robocall as:

“Any telephone call to a telephone number using and artificial voice or prerecorded message where a live person is not on the line and available to communicate with the intended recipient of the call at the time of connection to the telephone number called.”

Currently, mortgage servicers are not considered exempt from the laws outlined in The Telephone Consumer Protection Act (TCPA), despite efforts to petition the FCC otherwise back in June of 2016. The FCC ruled that the importance of dissemination of information about delinquencies to consumers did not warrant setting aside privacy concerns. Further, because consumers could revoke consent so easily, mortgage servicers could be at risk for hefty fines for each call. A standard definition of a Robocall would be in the interest of both the industry and the consumer.

“We applaud the FCC’s active engagement in protecting consumers,” said Ed Delgado, President and CEO of the Five Star Institute. “It is this shared interest that drives NMSA to continue to work towards shaping the American housing industry for the benefit of homeowners, and while there is more work to be done, this continued dialogue between concerned members of the industry and regulatory institutions is a step in the right direction.”

To view the letter, click here.

Source: MReport

Eye of the Storm

Posted on by Safeguard

Industry Update
August 1, 2017

Editor’s Note: This article is part two of three. Part one is available here. Part two was originally featured in the August issue of DS News, available now.

When Lewis Lapham wrote, “The state of perpetual emptiness is, of course, very good for business,” he wasn’t referring to the U.S. foreclosure system. The massive void of thousands of distressed and abandoned homes affects so many people and infects so many communities across the country. The problem can be as harsh on the eyes as it is hard to untangle; complexity begets confusion while despair moves into that place where the heart once resided. 

“The foreclosure process has its problems, from taking much too long to having complicated and conflicting national and local guidelines to significant exposure of risk and loss,” said Steve Salimbas, CEO of Agios World Wide, Inc. “Sadly, many people who have defaulted [on their mortgages] don’t know what options really exist.”

The side effects of this mortgage morass can range from disgusting and disturbing to outright dangerous. In Fairfax County, Virginia, traditionally one of the richest counties in the country, police discovered blood inside a vacant house. The Washington Post reported that an injured sexual assault suspect had been hiding there before he stole a car and fled.

“There’s no one there for accountability,” a police lieutenant told the newspaper about the wave of abandoned homes that hit Northern Virginia communities during the foreclosure crisis.

The City of Atlanta had one of the few police departments that formed a special vacant home burglary team during the housing downturn. CNN reported that the estimated damage in one house was between $15,000 and $20,000 for a theft of only about $40 worth of copper.

“They took the stove, the refrigerator, the cabinets, everything, including the kitchen sink!” a contractor told the news organization.

In 2016, a woman in Fort Walton Beach, Florida, consumed around 56,000 gallons of water from a foreclosed home in which she was squatting. Charged with theft of utilities, the suspect told deputies she knew the house was under foreclosure and that the lock on the water meter had been broken, according to the Northwest Florida Daily News.

The loss of a home, a resident’s sanctuary and a big part of their identity, is already such a major burden to bear. It goes beyond economic and social to the psychological, beyond the convenient coinage of Wall Street to Main Street. One most consider that the ill effects of the foreclosure crisis and its persisting problems, like those mentioned above, are not only cumulative but also self-exacerbating. The size, intensity, and complexity of the problem require major public and private reform, as well as strong focus and effort from cities to communities to the consumer.

Care Down, Costs Up

In the January 2017 white paper, “Understanding the True Costs of Abandoned Properties: How Maintenance Can Make a Difference,” Aaron Klein, the former Deputy Assistant Secretary for Economic Policy at the U.S. Treasury, tackled crime, property values, and city resources as the three main areas adversely affected by foreclosures and abandoned (or otherwise vacant) properties.

According to Klein, quite simply, a foreclosed home will be a depreciated one, which then detracts from the community and its housing comparables. This, in turn, leads to decreased value for nearby residents and depleted tax bases for municipalities—as Klein puts it, “a cascading cycle of value destruction.”

Tapping an array of economic data and academic analysis, his study, which was commissioned by Community Blight Solutions, found that the typical foreclosed home costs more than $170,000— approximately half of which is directly associated with property vacancy and condition.

The correlation between housing vacancy and crime unsurprisingly increases the longer a property stays vacant, likely plateauing between 12 and 18 months. The white paper also found that vacant residences account for one out of every 14 residential building fires in America.

To isolate the impact of foreclosure and abandonment versus just foreclosure, Klein cited research conducted by the Federal Reserve Bank of Cleveland (FRBC). Of 9,000-plus single-family homes in Columbus, Ohio, slightly more than 6,000 had been foreclosed on, while 4,152 were vacant/abandoned. Foreclosure and abandonment are multiple layers of loss that radiate out to other residents and the corresponding municipality. The FRBC study discovered that more than half of the total cost of a foreclosure’s impact on neighboring properties is due to the property being abandoned.

The white paper ultimately concludes that a vacant property triggers losses and additional costs of approximately $150,000 in its first year: $133,000 from reduced property value for neighbors, $14,000 in increased crime, and $1,500 in added expenses for the police and fire departments.

“These costs last over time,” Klein wrote. “For every additional year the property sits vacant, the crime and police costs add up. Even after the property is sold, neighbors will lose at least $25,000 for two years and quite possibly longer.”

It’s the laborious foreclosure act and system that bring about the home vacancy. Properties in Q3 2016 took an average of 625 days for foreclosure completion, according to the National Association of Realtors—but it’s the latter state of the property that drives the majority of the losses, including the increased likelihood of crime.

Wrong Kind of Open House

Time is money, but it is also exposure. Investors speak of exposure in terms of the amount of money that can be lost. The often- lengthy timeframe of a foreclosure process becomes problematic because it exposes a community to blight and destabilization. An abandoned home is susceptible to weather and fire damage, crime, degradation from lack of maintenance, and much more.

“As each property becomes vacant, it becomes an attractive nuisance that draws the attention of less-than-desirable elements,” Salimbas said. “This double-edged sword not only drags down nearby property values, it also reduces comparable values that are used for determining the REO list price, which reduces the net recoverable during disposition of the foreclosure even further.”

An abandoned and often-abused house acts as a value vacuum, hurting not only the homeowner but also the surrounding neighbors and the mortgage actors with a stake in the foreclosure process.

“Additionally, the asset is a financial drain,” Salimbas said. “As a nonperforming asset, it is not generating revenue during the nearly two-year-long foreclosure cycle.”

Seeing, in this case, is not believing—not believing that anyone cares about the property or that there will be repercussions for abusing it. Blight starts the second a casual observer can identify that a property is vacant with poor lawn maintenance or the more obvious eye sores such as boarded-up windows, according to the Agios CEO.

“When a vacant property is hard to identify when someone cannot hide behind a barrier and is exposed to all who pass by, it mitigates those negative elements,” Salimbas said. “Overgrown lawns attract rodents and eventually snakes. Boarded-up properties attract squatters, drug dealers, and vandals, who strip the copper piping and wires from the house. Occupants from neighboring properties know that criminal elements can quickly identify those properties and that those properties will get damaged and pose a risk to their health and safety as well.”

Neighbors in Need

Knowing is half the battle before and during a foreclosure, but it can be hard to keep one’s head in the high-stress fog of bank notices and deadlines, combined with the borrower’s economic, social, and psychological strife. There is relief, but the question is how to find it—or for it to find the borrower.

“A big challenge is targeting foreclosure prevention counseling effectively,” said Nicole Harmon, VP of Foreclosure Prevention Programs at NeighborWorks America, a Washington, D.C.-based organization that supports a network of more than 240 nonprofits with technical assistance, grants, and training for 12,000-plus professionals in affordable housing and community development. “Because of the microclustering of foreclosure, nonprofits have a tough time getting the word out to the homeowners who need it the most.”

Harmon explains that housing markets go beyond local; hyperlocal is probably the better word when it comes to foreclosures. Within different MSAs and Census tracts, NeighborWorks America will see areas where home values have recovered, but also “micro-pockets” where recovery is painfully slow. Job growth may be up in the overall MSA, but that certainly doesn’t mean all neighborhoods are experiencing the boost.

“That makes it difficult for homeowners who were in trouble to get out of trouble,” Harmon added. “Our grantees report that [the market uncertainty] has continued as servicers deprioritize loss mitigation again, and the sales of non-performing loans have restored some hardline positions among new loan owners, i.e., commercial investors. The unpredictability of the foreclosure process has been an evergreen complaint.” 

According to Klein’s paper, however, policies focused on loss mitigation have failed to adequately alleviate the harmful impact of abandoned properties and thus the vicious cycle of depressed property values and subsequent foreclosures.

Regulations and Restraints

Increased regulations and court requirements certainly add to the lengthy foreclosure timeline, but it’s not just the system slowing things down, according to Diane Bowser, EVP of Special Servicing at Selene Finance.

“Borrowers and their attorneys have become incredibly savvy when it comes to slowing, stalling, and even re-starting the process,” she said. “Despite our efforts to streamline the process and ensure necessary records are in place and accurate, we cannot do anything about the litigious opposing counsels that represent borrowers in foreclosure.”

Bowser points to Florida as having had the highest number of contested assets in the country.

“Some of these opposing counsels are paid a monthly fee to simply delay foreclosure actions—and it works,” she added. “These attorneys file pleading after pleading, for as long as they can, to delay a foreclosure that is, most of the time, inevitable.”

In New York, a servicer can get bogged down by the additional steps needed to complete a foreclosure, and then experience further delays when courts grant borrower motions for the reschedule of foreclosure hearings and sales. If there was any doubt, “screeching halt” are the words the Selene Finance executive used.

The Houston-based mortgage company, a leading servicer of nonperforming loans, routinely receives transferred portfolios with loans at various stages of the foreclosure process. As the servicer of record, it must validate each aspect of every affidavit and provide screen prints and documents supporting the review. Reviews can lead to required revisions of language and numbers, which, of course, mean more time and manual work. Inaccurate or insufficient records from prior servicers can have the process stuck in the mortgage mud from square one.

“It’s no surprise that this is an incredibly time-consuming process, and in some states, we have multiple affidavits that are required,” Bowser said. “Unfortunately, if we are not able to validate that the prior servicer took all required steps before and through foreclosure or that their documentation is inaccurate, it could lead to us having to start the entire process over.”

The Word Is Big

The housing downturn and resulting wave of foreclosures were huge. Klein reported that more than $2 trillion in property value evaporated as a result of approximately 13 million foreclosures. Big problems were fueled by the biggest industry actors, according to Rep. Jonathan Dever (R-Ohio).

“How do we deal with this gigantic mass that we’ve been handed?” Dever asked. “Largely, it’s been a failing, quite frankly, of our largest institutions and our federal government with the policy they created that lent itself to that [mortgage] balloon and that pop. We’re still trying to deal with the aftermath of it.”

Dever, an attorney who has worked on both sides of foreclosure cases in the Buckeye State, knew it would take considerable effort to right the wrongs. His fast-track foreclosure legislation that became law in 2016 began as a working group of various lenders, property remediation professionals, plaintiff and defense lawyers, and more. Their monthly meetings, which would have between 40 to 60 people in a room “working through the language and thinking about the unintended consequences of a comma,” went on for 18 months before introduction of the bill.

Big problems require big effort. According to Community Blight Solutions, only two fast-track foreclosure laws are on the books nationwide—in Ohio and Maryland—so much work remains. Meanwhile, another big wave looms in the not-too-distant mortgage future.

“Demographics are merciless,” said Kevin Hildebeidel, a lead attorney at Stern & Eisenberg, P.C., who noted that the number of people over 65 should double and over 85 should triple in the next 20 to 30 years. “The question remains to be seen: will millennials muster enough purchasing power to actually step up and buy homes from retirees at full market value or will the U.S. face a situation similar to Japan’s ‘Lost Decade’ with continuing declines over a long period of time?”

Source: DS News

Additional Resources:

DS News (Eye of the Storm)

DS News (Fast-Tracking Foreclosure)

Battling Blight: Four Ways Cities Are Using Data to Address Vacant Properties

Posted on by Safeguard

Industry Update
August 21, 2017

Whether the result of a destructive natural disaster like Hurricane Katrina or the consequence of the foreclosure and home loan crisis of the mid-2000s, cities across America have been burdened with blight, the presence of vacant and abandoned properties. The effects are seen in cities large and small, from New York City to Cleveland, New Orleans, and Youngstown, Ohio.

The cost of these empty lots and abandoned homes is not simply a cosmetic black eye for cities; blight causes real, tangible problems, prompting action by cities across the country. A study published this June by The Center on Urban Poverty and Community Development looked at the relationship between vacant properties and community health and crime in Cleveland, Ohio. The findings were definitive: there is “significant correlation” between vacant properties and violent crime, homicides, and elevated lead levels in blood tests — 83 percent of homicides, 65 percent of violent crime hotspots, and 62 percent of elevated lead levels overlapped with vacancy hotspots in Cleveland.

In response to what has proved to be an urgent urban crisis, cities are deploying a wide range of digital and data-driven strategies to address vacant and abandoned properties. From using data to drive efficiency in code enforcement to crowdsourcing the mapping of properties, cities across the country are making significant strides in the battle against blight.

NEW ORLEANS USES DATA-DRIVEN TOOLS FOR BLIGHT REMEDIATION

In the wake of Hurricane Katrina, the city of New Orleans was faced with a an abundance of vacant and abandoned properties across the city. Mayor Mitch Landrieu, when elected to office in 2010, made it a major priority of his administration to address the issue of abandoned and vacated properties across the Big Easy.

The city crafted a blight reduction strategy centered around results and improved performance management through public monthly BlightStat meetings. To further advance the work, the city began sending “nudging” letters to property owners when 311 complaints were filed, which resulted in more homeowners coming forward to bring properties into compliance before the city needed to take further action.

Taking the efforts a step further, the city also created a decision support scorecard that organizes the steps for handling a reported property and makes the code enforcement process significantly more efficient. Previously, there was a backlog of as many as 1,500 properties awaiting inspections and hearings — the digital scorecard streamlined the process. They implemented a machine learning model that makes recommendations for next steps based on a score for the property input by a mid-level supervisor, prioritizing the workflow for the Code Enforcement Department.

GIVING RESIDENTS THE ABILITY TO TRACK BLIGHT PROGRESS IN SOUTH BEND

In South Bend, Indiana, Mayor Peter Buttigieg heard from residents on the campaign trail that they wanted to see the next administration tackle the issue of vacant and abandoned properties. In short order, Buttigieg assembled a team to address the issue and by February of 2013, the city released a Vacant and Abandoned Properties Task Force Report which laid out the publicly stated goal of addressing 1,000 vacant or abandoned properties in 1,000 days.

Residents were given a window into the code enforcement process and were able to track the city’s progress on the city’s website. The public eye proved valuable when local media picked up on a bug in the city’s progress tracking system that incorrectly showed 100 properties pending review by code enforcement officials as already addressed. Santiago Garces, the city’s Chief Innovation Officer, said in an interview with Data-Smart that the revelation of this problem led to significant improvements in the city’s code enforcement process.

In the end, the city reached its stated goal of addressing 1,000 problem properties in September 2013, about two months ahead of schedule. By the 1,000th day, the city had taken action on 1,122 abandoned properties, repairing almost 40 percent of them, according to the city’s website. By taking a data-driven approach to tackling vacant and abandoned properties and using a digital platform to increase transparency to the public, Buttigieg’s administration sets a strong example for cities looking to solve public concerns over blighted properties.

BLEXTING: CROWDSOURCING PROPERTY MAPPING IN THE “MOTOR CITY”

Detroit’s Blight Removal Task Force, in partnership with Michigan Nonprofit Association, Data Driven Detroit, and Loveland Technologies launched in 2013 a physical survey to gather property condition data for all 380,000 parcels of land in the city. The city collaborative set out to create a thorough database of conditions of every property in Detroit to give the city a sense of where problem properties needed to be addressed — and an all-in-one place to keep track of properties over time.

Through a mobile application aptly called “Blexting,” a team of about 150 residents and volunteers surveyed the entire city to compile the database and citywide property map. Surveyors used the mobile app to photograph the front of every property — residential and non-residential — and answered a standardized series of questions about the property. Their responses assessed individual properties based on estimated occupancy, vacancy, fire damage, the existence of any “dumping” and the use of property (commercial, public, etc.)

To maintain consistency and reliability in the crowdsourced data, the collaborative maintained a “mission control” center where staff performed a quality check of the data submitted from the field in real time. The task force website reports that of the total 84,641 structures and vacant lots in the city, about 40,000 were deemed to fit the definition of “blight” and prioritized for removal or intervention. The detailed and data-driven survey questionnaire approach also allowed for the estimation of properties with indicators of future blight, of which the task force reported about 38,000 fit the bill. The task force recommended further inspection of these properties and a variety of interventions including rehabilitation, removal, and securing.

BUILDING A PREDICTIVE INSPECTIONS MODEL IN CINCINNATI

In 2015, the University of Chicago team of data scientists at the Center for Data Science and Public Policy (DSaPP) worked with the Cincinnati Department of Buildings and Inspections to develop a predictive model that allows for early intervention by building inspectors at homes and properties most at risk of vacancy or violations.

The predictive models the team at DSaPP developed combined data about home values, fire, crime, tax, census, and water shutoff information with historical inspection data to develop a list of properties prioritized by their need for inspection. The logic is that the earlier an inspector can visit a property likely to be in violation of city code, the earlier problems can be addressed, and the more likely it will be that the property is fixed as opposed to abandoned.

DSaPP’s blog post detailing the project says that the traditional method of using citizen complaints to inform property inspections leads to a violation found in 53 percent of cases. The initial results from 2015 show that using the predictive model increases the likelihood of finding a building code violation in a specific property to 78 percent.

These examples of data-driven strategies set a great example for cities across the nation burdened with blight. Deploying data in the fight against blight can significantly improve the code enforcement process to prevent vacancies before they happen, give residents a window into a city’s progress in the process of addressing blight like in South Bend, and bring them directly into the process of mapping properties to increase citywide knowledge with apps like “Blexting.” Cities in need of blight reduction strategies would be wise to learn from Detroit, South Bend, New Orleans, and Cincinnati to tackle blight while building trust with residents and increasing transparency along the way. 

Source: Data-Smart City Solutions

Are NPL and RPL Markets the Key to Investor Growth?

Posted on by Safeguard

Industry Update
August 9, 2017

A new report by Semper argues that the U.S. economy is transitioning from a post-crisis, recovering market back into a normalized market, and that NPL/RPL investments “should disproportionally benefit from the increases in credit availability and home price increases that typically occur during these transitions due to the embedded structural leverage to these factors.”

According to Semper, the housing crisis and its immediate aftermath turned portfolios of clean, current-pay loans into “mixed bags of underwater, non-performing assets.” But this environment in the NPL/RPL market in turn allowed for the mortgage holders who preferred performing assets to transfer impaired mortgages to investors who saw opportunities through active loan servicing. Consequently, post-crisis changes in banking capital requirements compelled many NPL and RPL holders to reduce holdings of their assets on their balance sheets. This, Semper argues, created excess supply in the market, and that led to varied investment approaches??private equity, hedge funds, and REITs, for example??being set up to absorb that supply.

“Today, we estimate an NPL inventory of [roughly] $105 billion, compared to estimates of $35 billion prior to the financial crisis,” Semper reported. “However, not only is the supply of NPLs still well above pre-crisis levels, NPLs are still well over double historical levels, and the market continues to draw new supply from a steady stream of ongoing loan defaults within the outstanding universe of pre-crisis mortgages, as well as post-crisis origination.”

Semper argues that despite a recovering economy on its way back to normal, the need to effectively work out the NPL borrower base has not changed. Further, the company reported, these borrowers are being liquidated in a much more stable and functional credit environment than what we saw in the period immediately following the financial crisis.

“As certain players have exited the trade, the supply and risk reward profile remains,” the report stated, “but it is now combined with our positive outlook on housing technical and fundamentals.”

Semper recommends several approaches: NPL securitization senior tranches featuring 40 to 50 percent credit enhancement, coupon step-ups that limit the extension of securitizations (and, thereby, encouraging issuers to exercise optional redemptions); RPL shifting interest securitizations that center on heavily seasoned underlying loans that boast strong credit profiles; and NPL whole loans that allow opportunities to invest directly into an active asset management strategy based on the underlying credit, and allow investors to either highlight or reduce exposure to certain sectors or loan characteristics such as legal jurisdiction or property type.

“We remain focused on investments and liquidity within the NPL and RPL sectors and remain constructive on the fundamental outlook of the assets and within the investment strategies above,” Semper concluded.

Source: DS News

What?s Wrong in Servicing?

Posted on by Safeguard

Industry Update
July 28, 2017

In a recent three-day online discussion organized by the Urban Institute, industry experts deliberated on the question “Are mortgage servicing costs, complexities, and risks impeding lending?”

Urban Institute Housing Finance Policy Center Codirector Alanna McCargo moderated the online event first asking if there are ways to reduce the costs of regulation in servicing without increasing risks to consumers and the housing market. Meg Burns, SVP of Mortgage Policy at Financial Services Roundtable said “Absolutely.”

“Consumers do not derive any benefit whatsoever from the complex and inconsistent rules that were imposed over the course of the crisis,” said Burns. “Ironically, the various regulators who issued new policies all had the same goals in mind—to improve servicing practices and enhance the customer experience.”

Burns said the regulations have lengthened the time that it takes to resolve delinquent loans, which increases costs and harms the people who are in need of help. David Battany, EVP of Capital Markets at Guild Mortgage agreed. According to Battany, consumer protection regulations need to be powerful, clear, and simple.

“When regulations are unnecessarily complex, or intentionally vague, this needlessly creates uncertainty and bureaucracy, which leads to higher costs, all of which are passed onto the consumer and reduces access to credit, particularly for higher risk and harder to serve borrowers,” Battany said.

The average cost to originate a loan is about $8,900, according to Battany, which is almost double what it was a few years ago. When borrowers sit down to look at their 100-page loan file, he wonders how many of those papers they actually look at and if the expensive work behind the scenes really adds value to them.

“Most regulations [had] very good intentions. Most people would agree that the ability to repay and many servicing regulations created post crisis solved real issues and provide important consumer protections,” Battany said. “The issue lies in the unintended consequences of the people who in good faith wrote the details of the implementation of these regulations without having a full understanding of the complex business processes they were attempting to regulate.”

Ted Tozer, former President of Ginnie Mae, said though the CFPB has one foreclosure timeline, an investor has a different one. In his opinion, the servicer should have only one timeline to comply with that doesn’t change based on the location of the property, the servicer’s regulator, or who owns the mortgage.

“Servicers need a set of rules and expectations that are specific, standardized, and consistently enforced by regulators and investors,” said Tozer. “A servicer should not be put in a position where they have to decide whose rules they will violate.”

This idea is consistent with the views presented in a recent white paper by the National Mortgage Servicers Association (NMSA), which looks to standardize key definitions, guidance, and best practices surrounding the preservation and maintenance of vacant and abandoned properties.

“At the end of the day we have to remember the housing finance ecosystem is basically a zero sum game,” said Tozer. “What ever economic burdens are put on mortgage investors and servicers, those costs will be passed on to borrowers in higher credit costs or limited credit availability.”
 
To view the NMSA white paper, click here.

To read the rest of the Urban Institute discussion, click here.
 
Source: DS News

Vacant Housing Registry is Illegal Investors Claim in Lawsuit

Posted on by Safeguard

Legislation Update
July 6, 2017

A group of investors are questioning the legality of Gloucester County’s vacant property registration program.
 
Two entities that purchase liens on tax delinquent properties are suing four towns and the company that administers the registry.

Two years ago, the county partnered with Community Champions Corp. to establish a database of abandoned and vacant properties in an effort to hold owners of properties — or mortgage holders — accountable for upkeep of those sites. Many communities have seen vacant homes fall into disrepair in the wake of the nation’s mortgage foreclosure crisis.
 
Florida-based Community Champions manages vacant property registries for communities around the country, including about 80 New Jersey municipalities.

Under the program, owners of these properties must register and pay a fee of a few hundred dollars. Community Champions, the county and participating municipalities split the proceeds.

Eighteen municipalities currently take part in the Gloucester County program and have adopted ordinances establishing the registry program in their communities. Deptford, Glassboro, Monroe and Paulsboro are named in the suit.

The plaintiffs, operating under the names Empire TF4 Jersey Holdings, LLC, Empire TF6 New Jersey Holdings, LLC, and Empire TF5 Jersey Holdings, all of the same New York City address, and Chickadee Investments, in Brick, argue that the program is unconstitutional, illegally targets owners working to get properties back on the tax rolls and charges unreasonable fees.

Is the program legal?

These investors buy municipal tax sale certificates, which are the liens on tax delinquent properties. These certificates can earn as much as 18 percent interest. When holders of these certificates foreclose on a property in order to take ownership, towns with vacant property registries have required them to pay registration fees so that they can sell the properties to a new owner, the plaintiffs state.

In order to sell a property in Glassboro, one of the plaintiffs had to pay the borough $2,000 in registration fees. Similar fees were required to sell properties in Paulsboro, Deptford and Monroe.

“We don’t think they have the legal authority to register tax sale foreclosures,” said the plaintiffs’ attorney, Keith A. Bonchi.

State tax sale law already lays out what his clients must do when purchasing tax sale certificates and foreclosing on properties, including how much an investor must pay the municipality, Bonchi said.

He also argues the ordinances are unconstitutional.

An Assembly bill was introduced in 2013 that laid out guidelines for municipal vacant property registration programs.

“Assembly Bill No. 4031 was never enacted into law and the Legislature in the State of New Jersey has never enacted a statute authorizing the registration of vacant/abandoned properties,” the suit states. “In New Jersey, municipalities are the creature of statutes and can only exercise those powers expressly granted by the Legislature.”

Community Champions officials had no comment on the pending litigation.

The New Jersey League of Municipalities has stated that municipalities have the power to create vacant property registries under the New Jersey Constitution and that this power is supported by case law.

Apart from the legality question, Bonchi argued that those who purchase tax liens on properties are supporting the goal of getting vacant homes occupied, cleaned up and back on the tax rolls.

Are fees unreasonable?

Bonchi also questioned the value of the registry program, saying that the information about property owners and lien holders is readily available to municipal officials concerned about enforcing property upkeep. He also said the fees are baseless.

“These ordinances are designed as a back door attempt to raise revenue for municipalities and the amount of the fees have no reasonable relationship to the cost of keeping a register of vacant property even if same were allowed by state law,” the suit states.

The plaintiffs want the ordinances declared unconstitutional, they seek an injunction barring towns from enforcing the ordinances on properties obtained through tax foreclosures and they want Community Champions blocked from collecting registration fees.

Local officials have praised the program for providing a point of contact when issues arise with a particular property. Vacant property registration programs are popping up around the country.

While Deptford Mayor Paul Medany hasn’t seen the lawsuit yet, he is pleased with the program. More properties are getting cleaned up and owners are being held accountable, he said.

Many towns have faced similar challenges, with homeowners skipping town because they cannot keep up with mortgage payments and leaving a decaying property behind. In additional to overgrown grass and infestations, the properties often become magnets for vandalism, drug dealing and squatters.

“We’re making really good progress in Deptford,” Medany said. “We’re getting a lot of properties off the books. I’m happy with the program.”

Source: nj.com

Additional Resource:

Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill (Amended Complaint In Lieu of Prerogative Writ for Declaratory Judgment pdf)

New York City Guarantees Legal Representation to Low-Income Residents Facing Eviction

Posted on by Safeguard

Legislation Update
July 21, 2017

Over the last several years, New York City has been aggressive in seeking to decrease the number of evictions that happen in the city, going so far as set aside nearly $50 million in 2014 and 2015 to provide legal services for residents facing eviction.

Now, the city is taking its fight against evictions to another level by becoming the first city in the country to guarantee legal representation to low-income tenants who are facing eviction.Over the last several years, New York City has been aggressive in seeking to decrease the number of evictions that happen in the city, going so far as set aside nearly $50 million in 2014 and 2015 to provide legal services for residents facing eviction.

Now, the city is taking its fight against evictions to another level by becoming the first city in the country to guarantee legal representation to low-income tenants who are facing eviction.

On Thursday, the New York City Council voted overwhelmingly to approve legislation that would provide legal counsel to all residents facing eviction in some form.

Under the legislation, which passed by a 42-3 margin, low-income tenants would get full legal representation throughout the eviction process, paid for by the city.

Other tenants will receive “brief legal assistance,” which will also be paid for by the city.

According to details from the New York City Council, “access to legal services in these critically important proceedings helps to level the playing field between landlords and tenants while allowing more New Yorkers to remain in their homes.”

The council notes that the city’s initial efforts to expand access to legal services, as noted above, increased the percentage of represented tenants from 1% in 2013 to 27% last year, while residential evictions dropped by nearly a quarter.

Under the legislation, the city’s civil justice coordinator is now required to establish programs to provide all tenants facing eviction with access to legal services within five years.

The legislation also states that by October 2017, the coordinator must establish and begin implementing a program to provide legal services to all tenants of New York City Housing Authority buildings in administrative proceedings to terminate their residency.

“Too many of the most vulnerable New Yorkers face eviction simply because they don’t have the means to hire an attorney. Today, the passage of this bill marks the beginning of a new era for tenants in New York City,” said Council Member Mark Levine, one of the bill’s sponsors.

“New Yorkers have a right to affordable housing and to a fair justice system. No longer will low-income tenants have to fend for themselves in Housing Court. This new law is an historic step forward in the fight against unlawful evictions,” Levine continued. “I am honored to stand alongside my colleagues as New York becomes the first city in the country to guarantee legal representation for low-income tenants in Housing Court, and I look forward to working with elected officials across the country to draft similar legislation.”

New York City Mayor Bill de Blasio hailed the passage of the legislation.

“Everyone, no matter their income level, deserves access to counsel to stop wrongful evictions and keep their homes,” de Blasio said in a statement.

“Prevention is a key component of our plan to address the economic drivers of homelessness, which is why this administration has made significant investments in tools and tactics to help New Yorkers remain in their homes,” de Blasio continued. “Thanks to Speaker Mark-Viverito and the council, this new legislation will help more people stabilize their lives and keep roofs over their heads. We vow to continue fighting every day to level the playing field.”

John Pollock, the coordinator of the National Coalition for a Civil Right to Counsel, said that while New York City is the first to make a move like this, other cities will soon follow suit.

“No city or state has done what New York City has to guarantee counsel in eviction cases,” Pollock said. “But a lot of places are now saying, ‘We want to be next.’”

Source: HousingWire

Additional Resource:

The New York City Council (Law 2017/136 info)