The Blight Fight

The Blight Fight

The quaint house on Idaho Avenue hadn’t changed much since Frances Espinoza last saw it.

The grass in the small front yard wasn’t quite overgrown, but still unkempt. A tan, out-of-place piece of siding patched the outside wall beneath the left-front window, and a cluster of roofing shingles did the same under another window on the right.

Cracks in the white paint revealed the ash-colored, wooden skeleton of the house.

“They haven’t really done anything to it,” Espinoza said. “You can see there’s a lot of problems.”
“They” meaning mortgage servicers.

The industry has long known of problems with vacancy and blight, even before the latest housing collapse. Behind-the-scenes responses — including code enforcement and neighborhood outreach — have met varying degrees of success. Yet the NFHA’s recent complaints bring new, unflattering attention to the issue.

Problems with vacant homes are epidemic in many cities’ minority neighborhoods, the NFHA said. After roughly nine months inspecting 1,000 homes, the NFHA said it found homes located in predominantly minority neighborhood weren’t in as good of shape or marketed as well as those in mostly white neighborhoods.

“It’s the same pattern,” NFHA CEO Shanna Smith said. “You find that they don’t put for sale signs up in communities of color. They’re not maintaining the lawn, cleaning the trash.”

But many within the mortgage and housing industry contest the NFHA’s findings, saying they make don’t make decisions of whether to clean up or repair a property based solely upon where it’s located.

The NFHA accused Wells Fargo and U.S. Bancorp, through Department of Housing and Urban Development complaints, of discriminatory practices in their maintenance of real estate owned properties — complaints of wrongdoing that both Wells and U.S.

Bancorp strongly deny. The NFHA said more complaints could come against other mortgage servicers and property managers, as part of an investigation funded by Fannie Mae and HUD grants.

The dilemma of managing vacant REO properties puzzles and presents problems for many, including the asset holders.

“The banks and servicers are looking for answers, too,” said Cary Sternberg, a senior vice president at Bank of America, though not speaking on behalf of the company. “But the answers have to be reasonable, and the answers have to make financial sense along with upholding their community responsibilities.”

THE INDUSTRY REACTS
For their part, the NFHA’s Smith said her group wanted to use this study and the HUD discrimination complaints, under the Fair Housing Act, as a way to get Wells Fargo and U.S. Bancorp to the table, regardless of whether the alleged discrimination is intentional. A complaint simply means HUD will investigate the dispute, and the two parties will sit down for talks to try and reconcile any allegations.
If that process fails, HUD may choose to file a lawsuit, or the NFHA could sue on its own.

“If somebody wants to fight, that’s fine,” Smith said. “That could take years to get a solution, and it’s just better for the neighborhood if we could get something done quickly.”

Spokespeople for Wells Fargo and U.S. Bancorp said the companies hadn’t yet received specific information on which of their properties were involved in the NFHA study.

“We don’t have a good sense of exactly what it is that we’re dealing with,” Wells Fargo spokesman Tom Goyda said. “It’s really impossible to respond specifically to this point.”

Both banks also point to their frequent status as a trustee on a loan that has been pooled and sold into a mortgage security. In these cases, the banks said the responsibility to maintain a foreclosed, vacant property would fall on someone else — typically the mortgage servicer responsible for managing the loan. But neither said race or location are taken into account when they make decisions regarding property maintenance.

The NFHA left open that possibility in its report.

“Wells Fargo conducts all lending and servicing activities in a fair and consistent manner, without regard to race,” Wells spokesman Goyda said.

Others in the industry responded similarly. Alan Jaffa, CEO of Safeguard Properties, said the property preservation company doesn’t discriminate in its practices. He said Safeguard wouldn’t work with a company that would attempt to instruct them to ignore or neglect certain neighborhoods.

Freddie Mac, meanwhile, said it doesn’t have preservation and marketing policies that apply to some neighborhoods and not others. “A lot of people always ask, ‘So how do you decide when to repair a home?'” said Eric Will, who directs REO sales for Freddie Mac’s HomeSteps program. “We don’t have any blanket policies that say, in this neighborhood, we don’t do repairs.”

DISPARATE IMPACT CLAIMS
Discrimination, on its surface, has a sharp social connotation. It suggests a conscious decision made to undercut someone based on their race, ethnicity or other characteristics.

“In my experience, it’s never blatant like that,” said Espinoza of the North Texas Fair Housing Center.

Legally speaking, “blatant” discrimination is characterized as so-called disparate treatment, wherein someone deliberately discriminates against another party. But in a disparate impact claim—such as that alleged by the NFHA—a plaintiff can claim discrimination even when there’s no intent to discriminate, according to Chris Willis, a lawyer with Ballard Spahr.

Willis, who represents lenders in consumer financial services cases, said policies can be race neutral on the surface, but can still have an unintentded, unequal impact on parts of the population. Apartment landlords made this argument recently in a lawsuit against the city of St. Paul, Minn., after ramped-up code enforcement regulations drove rents higher at affordable housing complexes.

The new regulations, landlords argued, crowded out low-income and minority tenants. The case made it all the way to the U.S. Supreme Court, but the city dropped its appeal because it feared a decision in its favor could undermine civil rights.

Ballard Spahr’s Willis called the NFHA’s REO claim novel, but thought it might make for a difficult fair housing argument.
“I would say that’s a little bit of a stretch,” Willis said.

Undaunted, the NFHA’s Smith said the maintenance of only certain properties does fall under the Fair Housing Act. Failing to maintain a vacant property not only impacts the value of the home next door, but could also endanger the tax base in the area, meaning schools and other property-tax-supported services could suffer, she said.

THE NFHA INVESTIGATION
The housing crisis has clearly taken its toll on the nation’s minority populations. In a study by the Center for Responsible Lending, researchers found that Latino and African-American borrowers are twice as likely to have lost their home to foreclosure than whites. And even among good-credit borrowers, blacks and Latinos were three times as likely to receive a subprime loan between 2004 and 2008.

Bank of America, acting on behalf of defunct lender Countrywide, paid $335 million late last year to settle a Justice Department lawsuit regarding discriminatory lending practices.

In nearly every city the NFHA looked at for its own vacant property maintenance study, it said African-American and Latino neighborhoods scored lower than white neighborhoods, findings that the NFHA said remained even among newer properties.

In Dallas, the house on Idaho Avenue, in a mostly African-American community, received a score of 75—deemed a “C” and slightly above the average 74.1 rating for all similar neighborhoods in the city. (Neighborhoods were rated on a 100-point scale.)

It’s unclear what exactly happened to the home and when it became vacant in a state largely known within the mortgage industry for its speedy foreclosure process. Dallas County records show that the deed on the house transferred from an individual owner to Bank of America Home Loans Servicing on May 17, 2010. The home came under the auspices of HUD on March 14, 2012, according to an agency spokesman.

Bonnie Jones, who has lived next door to the Idaho Avenue property since 1992, guessed the home had sat vacant since sometime in 2009. The last owner, the 81-year-old said, stripped the house of much of its valuables when he left, taking bathroom fixtures, the air conditioner and even the flowers outside.

The property had also deteriorated considerably since it became vacant. The lining on some windows had rotted beneath the black, iron bars that covered them. A pole in the middle of the front yard lacked the lamp that formerly sat atop it.

SENSITIVITIES EXPLAINED
Banks and mortgage servicers have more than just a civic duty to do right, said Sternberg, a long-time asset manager for mortgage servicers. They have to strike a balance between that and their responsibility to their stockholders and investors, inevitably concerned only about the corporate bottom line.

The NFHA has “one agenda, and that’s not to say the agenda is bad,” Sternberg said. “The issues that are involved are very sensitive.”
In certain situations, if an REO property is located in an area with a high vandalism risk, Sternberg said it might make more sense not to make a repair. That to him isn’t a case of disparate impact, but rather sound business logic.

“It doesn’t make sense to continually fix a window to have it broken [again],” Sternberg said.

Blight leads to further problems, and not just for the neighbors. Properties become a tougher sell and are harder to keep up to code according to Eric Miller, executive director of the National Association of Mortgage Field Services, an industry trade group.

Ultimately the neighborhood a property is located in comes along with any home purchase, Miller said. And with 18.5 million vacant homes nationwide, according to the Census Bureau, odds are pretty good that many neighborhoods across the U.S. have multiple vacant homes.

“If there are other properties that are blighted in that area … that investment could be potentially watered down,” Miller said. “There are certain areas you’re not going to prevent damage from occurring.”

That makes it increasingly important to maintain a relationship with a local city’s code enforcement team, said Rob Behrend, head of REO sales for Homeward Residential, formerly American Home Mortgage Servicing. The code officer’s uncertainty over the home’s actual servicer can delay needed repairs.

“That code violation could take a month before it gets to me,” Behrend said.

Often county or city records give the wrong contact information, a common complaint from code officials, according to Michael Halpern, director of community initiatives at Safeguard. Vendors, including Safeguard, offer access to a liaison system that facilitates contact between servicers and local municipalities.

The goal, Halpern said, is to maintain full transparency on both ends. He said Safeguard is even trying to reach out directly to elected officials.

But vandalism isn’t a just problem in blighted neighborhoods, Freddie Mac’s Eric Will said. He said in at least one suburb, people targeted the government-sponsored enterprise’s homes and stole heating and air-conditioning units.

In some communities, with consultation from brokers, Will said Freddie Mac will avoid posting signs on a vacant home in the hopes of deterring would-be burglars.

“You don’t have to be concerned about vandalism just in inner-city, urban neighborhoods,” Will said.

Low-value homes can also present an economic quandary, according to Sternberg. With the cost of repairs needed to bring an REO property up to a lendable standard, the margin might not be enough to outpace the lower sale price if sold as-is to an investor.

From an economic perspective, it can be hard to fault a lender for making a decision to leave a property as-is, said Brian Hurley, president at New Vista Asset Management. The company promotes homeownership for minorities, as well as households with low-to-moderate incomes.

Hurley said if no one makes an investment in blighted neighborhoods — which often have strong racial and ethnic correlations — the ruin doubles upon itself. Most people, he said, understand the long-term costs of this process.

“Someone has to be accountable to step up to the plate and say, ‘I’m going to stop the cycle,'” Hurley said. “I think institutions understand that there is a great desire on the part of America at large to see them do the right thing.”

FREDDIE SETS AN EXAMPLE
The National Fair Housing Alliance’s complaints of disparate impact hinge, in part, on whether it can demonstrate other practices can achieve the same business ends, Willis, the lawyer, said.

But many of the changes companies could make are already in place elsewhere, the NFHA said, often citing Freddie Mac as a good example in its investigation. The mortgage giant has developed a mutual relationship of sorts with the NFHA, trading information back and forth.

“We want our homes to look as good or better than other homes in the neighborhood,” Freddie Mac’s Will said. “Our goal is not to sell homes at deep discounts because that hurts communities.”

A number of measures, Will said, can help stave off REO blight. Freddie prefers to contract with local vendors in the community, he said, and give them authority to make emergency repairs — even without prior consent from Freddie Mac itself.

The GSE also wants its listing brokers to make a point of reaching out to neighbors, typically posting contact info in case of a problem with the property.

“I don’t think these things are necessarily rocket science,” Freddie Mac’s Will said. “It’s about effectively managing your portfolio of loans.”
Of course, Freddie’s biggest investors — the federal government and the American taxpayer — might have different priorities than those of large, public financial institutions. But Sternberg said no lender or servicer would ever tell a preservation vendor not to keep a house up to code.

“I just don’t believe that there’s any bank or servicer in the country that’s knowingly doing that,” Sternberg said. “They’re doing everything to be a good citizen with the constraints that they have.”

Pure, bottom-line economics don’t always translate to homeownership on the other end of an REO sale. Community advocates, like the NFHA, would prefer to see a home go to an owner-occupant, as ownership rates fall to pre-bubble lows.

The declining trend in homeownership has been especially tough for African-American and Latino households, according to Census Bureau data. While roughly 73.5% of white households owned a home in the first quarter of 2012, blacks and Latinos saw significantly lower shares of 43.1% and 46.3%, respectively.

Add that onto the adverse effect of the housing crisis and lost equity on minority populations’ wealth. Pew Research Center reported median wealth fell by more than half for African-American and Latino households from 2005 to 2009, but dropped by just 15% among whites.

Household wealth, particularly in middle-income, minority communities, is dominated by families’ investment in their homes, New Vista’s Hurley said.

The NFHA’s investigation frequently cited what it believes is a lessened effort to actively market REO properties in minority neighborhoods, making fewer homes available for possible owners.

“We don’t want to have our communities devastated by absentee landlords, absentee investors who are not taking care of the home,” NFHA’s Smith said.

Back in Dallas, however, luck changed for the home on Idaho Avenue. Shortly after HUD took it over, a for-sale sign appeared in the front yard.

“This is the first time anybody’s taken interest in it since it became vacant,” said Bonnie Jones, the next-door neighbor.

At an asking price of $20,000, Bonita Foucher, the listing agent, received a number of inquiries on the home. Within three weeks, she got a signed contract.

Foucher said she couldn’t say much about the buyer, other than that it’s an owner-occupant like most of the other homes up and down Idaho Avenue.

“We used to have all-time highs for homeownership for Latinos and African- Americans and whites,” Smith said. “If we’re going to start a recovery, we need to have properties in good shape.”

To view the online article, please click here.

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees  and a handful of contractors performing services in the Midwest, to a national company with nearly 1,000 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.

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CHIEF EXECUTIVE OFFICER

Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.

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Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.

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CHEIF INFORMATION OFFICER

George Mehok

George Mehok is the chief information officer for Safeguard. He is responsible for all strategic technology decisions, new systems deployments and data center operations supporting a national network of more than 10,000 mobile workers.

George has more than 20 years of leadership experience dedicated to high-growth companies in the mobile telecommunications and financial services industries, spanning startups to global industry leaders.

George played a senior role in the formation of Verizon Wireless, leading the IT product development and strategic planning team. He led the integration planning for the Verizon merger including: GTE, Vodafone-AirTouch, Bell Atlantic Mobile and PrimeCo.

As chief information officer at Revol Wireless, a VC-backed CDMA wireless communications network operator, George’s team implemented an integrated technology infrastructure and award-winning business intelligence platform.

George holds a bachelor’s degree in political science and economics from Eastern Michigan University and an M.B.A. from The Ohio State University. He is a board member of Akron University’s School of Business Center for Information Technology, in addition to an advisory board member for OHTec.

In 2013, George won the Crain’s Cleveland Business CIO of the Year award for his team’s work in completing a major acquisition and technology transformation at Safeguard. In 2015, George’s team was recognized by InformationWeek’s annual Elite 100 ranking of the most innovative U.S.-based users of business technology. The mobile inspection technology developed at Safeguard was selected as InformationWeek’s “One of the top 20 ideas to steal in 2015”.

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General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard, with oversight responsibilities for the legal, human resources, training, compliance and audit departments. Linda’s broad scope of oversight covers regulatory issues that impact Safeguard’s operations, pro-active risk mitigation, enterprise strategic planning, human capital and training initiatives, compliance and audit services, litigation and claims management, and counsel related to mergers, acquisition and joint ventures.

Linda’s oversight of the legal department along with multiple compliance and human capital focused departments assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans almost 20 years, and Linda’s experience, both as outside and in-house counsel, covers a wide range of corporate matters, including regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.

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Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.

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AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.

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AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.

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AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.

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AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.

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AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.

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AVP, Mobile and Analytics

Jason Heckman

Jason Heckman is the assistant vice president of mobile and analytics for Safeguard. He is responsible for both Safeguard’s mobile development and strategy as well as the company’s data warehousing and business intelligence. Jason oversees the design, development and release of all Safeguard’s internally developed mobile applications. He also oversees the development and delivery of operational and analytical data technologies throughout the organization.

Jason joined Safeguard as manager of mobile in 2012. During that time he led the development and integration of Safeguard’s mobile applications across the company’s vendor network to provide real-time data from the field. In 2014, he was promoted to director of mobile applications and named assistant vice president in 2017.

Prior to joining Safeguard, Jason was the director of application development and business intelligence for Revol Wireless, a privately held wireless provider in Ohio and Indiana.

Jason holds a bachelor’s degree in business management from Case Western Reserve University in Ohio.

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AVP, Business Development

Tim Rath

Tim Rath is the AVP of business development for Safeguard. He is responsible for developing innovative growth strategies for Safeguard and developing and overseeing potential partnerships, mergers and acquisitions.

Tim joined Safeguard in 2011 as project director and has filled numerous roles within Vendor Management, most recently serving as director of vendor management, a role he assumed in 2011.

Prior to Safeguard, Tim worked as director of supply chain at PartsSource Inc. in Aurora, Ohio, a provider of medical replacement parts, procurement solutions and healthcare supply chain management technology services. He also has held sales positions with Rexel, ComDoc, and Pier Associates, all based in Ohio.

Tim holds a degree in marketing and sales from The University of Akron in Akron, Ohio. He also earned his FAA Certified Commercial UAS (Drone) Pilot license in 2017.