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HUD Property Preservation
Issues
1) MBA-sponsored
HUD/M&M Contractor/Servicer Work
Group.
There is a work group
headed by Caroline Reaves of Midland Mortgage, comprised of several
servicers and vendors, to solicit the valid concerns of the
servicers both as to the preservation guidelines and in dealing
with the M&M contractors. Servicers are encouraged to send any
comments they may have to Caroline Reaves for inclusion and
discussion. Leslie advised that it has been some time since they
have met and a conference call should be scheduled in the near
future.
2) Aggressive interpretation of mortgagee
neglect by M&M contractors.
The M&M contractors can
not hold the servicers responsible, threaten reconveyance or
off-sets for anything that is not clearly outlined in Mortgage
Letter 97-31 or any subsequent mortgage letters. Mortgage Letter
97-31 was not indented to place the responsibility of placing the
property in marketable condition on the servicers. Placing the
property in marketable condition and marketing the property is the
responsibility of the M&M contractors and they cannot shift the
responsibility back to the servicers by, for example, claiming that
all items left in the property should be considered personal
property and removed by the servicer in non-debris removal
areas.
Leslie Bromer advised that there will be
training conducted with the M&M contractors on what can be
considered mortgagee neglect. Leslie also reiterated that the
servicers' best defense to a charge of mortgagee neglect is to
fully document the condition of the property upon first entry after
the property has been vacated by the mortgagor. Any damages that
can be documented in existence at the first time vacancy cannot be
considered mortgagee neglect.
3 ) HUD demand/offset or reconveyance letters.
It was discussed that servicers are being deluged with such
letters, many of which are sent 1-2 years after the conveyance of
the property. Leslie indicated that the M&M contractors are
responsible for proving the claims they make in the demand letters
and that all demand letters should be received timely after
conveyance of the property. A time frame of 30-45 days from the
conclusion of the claim file was discussed. Further clarification
on the guidelines for issuance of these letters will be provided to
the M&M contractors. For any letters already received that a
servicer is disputing, Leslie recommended that the servicer
initiate the lender appeal process by elevating the dispute to the
appropriate HOC.
4) Other M&M contractor issues (delays, overallowables,
extensions, etc.). Servicers continue to run into delayed
responses from the M&M contractors on various issues and an
unwillingness to grant extensions. In particular, a failure to
grant extensions to allow the processing of hazard claim files was
discussed, with a notation that servicers should fully inform the
M&M contractor that they are in the process of seeking
insurance funds for damages to the property and the amount of
damages so as to allow a more informed decision as to the granting
of the extension. It was explained that by M&M contractors
refusing to give extensions to allow time to settle the claim with
the insurance carrier, HUD may be losing a significant amount of
funds it may otherwise be able to obtain to repair properties.
There are two mortgagee letters
which are in the clearance process at HUD. One letter has been
redrafted to account for the restructuring of the HUD field offices
and includes updated regional variations and cost allowables as
well as detailing a new lender appeal process. The other mortgagee
letter in the clearance process outlines new time frames and
attorneys fees.
Copies of the most recent regional property preservation guidelines
for the ten regional offices were distributed in booklet form.
It was
discussed that generally the right of a servicer to preserve and
protect a property arises under the mortgage contract as that may
be limited by state law. Some servicers have chosen to perform as
little work prior to foreclosure sale as possible to prevent
various claims of trespass, conversion and damaged property.
The consensus was generally that
for both pre-sale and redemption periods, only that work which is
required to be performed to protect the property and to avoid any
citations should be performed.
Many servicers
are following a process whereby upon a first visual inspection in
pre-foreclosure which finds a property may be vacant, the property
is automatically secured by the preservation vendor. There is
inherent risk in this process as the field service vendor is often
without other necessary information i.e., a third party sale,
reinstatement etc., that would indicate no work should be
performed. It was recommended that while an auto securing process
may be beneficial in the winter months where it is more immediately
necessary to protect properties from freeze damage, that in the
summer months the auto securing process should not be followed and
a
ten-day vacancy letter
should be sent before securing the property.
Personal line and
Forced Place carriers often provide initial claim denials which are
successfully overturned. Servicers are encouraged to review all
denials and the insurance contract carefully as recovery may be had
even if initially denied. Leslie advised that a number of servicers
are utilizing the services of companies that specialize in
reviewing denials have been successful in obtaining recovery after
an initial denial.
Servicers are seeing a rise in
situations where violations are issued, which become a lien, where
the problems sited are not mortgagee neglect. Servicers should work
closely with HUD to resolve those issues. Further, HUD is
considering whether properties with violations that are clearly
mortgagor neglect may be conveyed with an exception on the title,
i.e., electrical issues,conversion of a single family to multi
units without proper permits, smoke detectors
etc.
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