Feature appeared in the USFN Report (spring 2010 ed.)
Reducing the Effects of the Housing Crisis:
What?s Working and What Isn?t?
by Robert Klein, CEO
USFN Associate Member
In the past few years, there has been no shortage of ideas on how to stem the
losses resulting from the worst housing crisis the United States has seen since the Great
Depression. From vacant property registration ordinances and foreclosure moratoriums to
loan modifications and other initiatives, government at all levels seems set on legislating
itself and its constituents out of the housing troubles. As a new year and a new decade get
underway, it is helpful to take a closer look at some of these initiatives, to see what is
working, and where energies may need to be refocused.
Vacant Property Registration Ordinances
Cities and states across the country ? frustrated by their inability to find a
responsible party upon whom to serve notices of code violation affecting vacant
properties ? enacted, or began considering, vacant property registration (VPR)
As admirable as the goals of VPR ordinances are, the enforcement challenges are
significant. On the industry side, complying with thousands of different ordinances
around the country is daunting. Similarly, on the code enforcement side, the costs and
administration requirements to enforce these ordinances further burden departments
already short of resources. Further, because the vast majority of servicers who already are
visible and responsive to code enforcement officers are the most likely to comply with
the ordinances, and those responsible for the most troublesome properties continue to be
elusive, the likelihood is that enforcing VPR ordinances actually creates very little
Last spring, in this publication, I (along with co-author Lawrence Garfinkel of
Bendett & McHugh, PC) described an initiative between the Mortgage Bankers
Association (MBA) and the Mortgage Electronic Records System (MERS). The MBA
convened a VPR committee to look at the proliferation of these ordinances and
recommend a solution.
The industry proposed the ?MERS Initiative,? a solution that is free to
municipalities, and that utilizes a proven and widely regarded system. The MERS
database contains information on more than 65 million properties across the country. By
adding one more piece of information to the property file ? a property preservation
contact for code enforcement ? and making that database available to cities and states
free of charge, government agencies have access to a ready-made VPR system.
After a year-long pilot program, the system was rolled out in 2009. To date,
nearly 400 cities have signed on. Some cities utilize the system in tandem with existing
VPR ordinances. Others have chosen to use the MERS system alone.
The ?hit rate? for code enforcement officers in identifying a contact to address
property issues has been between 50-60 percent. Enforcement officials have commented
that the MERS system may not solve all of their code violation problems, but it is an
important tool in preventing vacant properties from becoming nuisances in their
At the U.S. Conference of Mayors, held in January 2010 in Washington, D.C.,
demonstrations of the MERS system were offered. The majority of mayors viewing the
demonstration asked for follow-up with their code enforcement departments.
The MERS initiative is a great example of what works. A collaborative effort with
low implementation costs, available free to cities, and utilizing an existing system, it
provides mutual benefits for municipalities and the mortgage servicing industry ? with
no additional administrative requirements on either side.
Homeowner Protection Initiatives
In 2009, the continuing increase in the rates of defaults and foreclosures across
the country prompted the federal government, and many states, to pass legislation to help
keep homeowners in their homes. The most significant were the Obama administration?s
foreclosure moratorium and mortgage relief program, designed to keep more Americans
in their homes and modify millions of loans to more affordable levels. Many states also
have enacted or are considering foreclosure moratoriums.
Even without moratoriums, many states? foreclosure proceedings can take a year
or longer, giving lenders and borrowers time to explore loss mitigation options that help
borrowers keep their homes. Certainly, the industry applauds efforts to keep people in
their homes, including borrowers who are behind in their mortgage payments. It is well
accepted that an occupied property generally maintains its value better than a vacant
Whether these programs will succeed in the long run is the subject of much debate
in the media, in government circles, and across the mortgage industry. Setting the longterm
debate aside, the real concern for the industry in the short term is that ?one-size-fitsall?
solutions don?t work in all circumstances. Some of these solutions actually create
worse problems than the ones they are designed to resolve.
Moratoriums are a perfect example. When you have a homeowner living in a
house and asking for help with his mortgage, it makes sense to help him stay in his home.
It is better for the homeowner, the mortgage company, the neighborhood, and the
community for that house to remain occupied. What is the value of a moratorium, though,
when the homeowner abandons the property? In these cases, all a moratorium does is let
the property sit vacant for a longer period of time. And the longer a property is vacant,
the more it deteriorates, even a property that is regularly inspected and maintained by a
professional field servicer.
As a field service company, Safeguard sees first-hand that most abandoned
properties are in decent condition when they are initially secured. Over time, however,
the condition of the property declines, even a property that receives regular inspections
and maintenance. Vacant properties are more likely to be broken into or vandalized. They
are not heated and air-conditioned, so extreme temperatures can cause severe damage,
even to properties that are winterized and ventilated. The longer a property sits vacant,
the more likely it is to lose value and become a nuisance for neighboring properties.
Moratoriums and extended foreclosure proceedings are examples of initiatives
that aren?t right for all circumstances. Instead, what states could be looking to do is to
handle occupied and vacant properties differently. Certainly, if a defaulted property is
occupied, the borrower and lender should be given some time to work out a better
arrangement to keep the homeowner in his home. But once a property is determined to be
vacant, states could provide a major service to their citizens if they changed their laws to
put those properties on a fast-track to foreclosure. The benefits are significant all around.
Neighborhoods benefit because property values are maintained, and the property
is in good enough condition to attract a homebuyer who wants to raise a family there. The
mortgage companies benefit because the property sells for a higher price and property
preservation costs are lower. Municipalities benefit because when property values are
higher, so are tax assessment values, not just for the vacant property, but for the
neighboring properties as well.
Throughout the industry, the notion of fast-tracking is drawing more attention and
discussion. Collaboration among all segments of the industry impacted by the mortgage
crisis is essential to make foreclosure fast-tracking of vacant properties a nationwide
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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 over 700 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.