| USFN Spring Regional 2005 Huntington Beach Code Session Summary |
| Tuesday, 31 May 2005 | |
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USFN Spring 2005
Regional Default Servicing Seminar Chicago: Deputy
Commissioner Pura Bascos
We opened the session with a PowerPoint presentation by Mark Morrow (from the city of Los Angeles), which highlighted some of the problematic circumstances that the city regularly faces. Mark noted that the city's primary concern is the criminal activity (drug use and distribution, prostitution, arson, gang-related activities, etc.) that vacant and abandoned properties tend to attract. Mark explained that the Los Angeles police department calls him directly when they need assistance to abate a nuisance, and he commented that many of the serious problem properties that he gets calls on are lender-owned. The city wants to work with servicers to correct the conditions at vacant properties that tens to appeal to a criminal element.
Los
Angeles requires owners of vacant properties to file a statement of
intent identifying the expected period of vacancy and the owner's
plan for maintaining the property. The city will use civil
filings and criminal misdemeanor charges to get the attention of
negligent owners, with remedies for these violations to be dictated
by the court. However, Mark stressed that the code department is
there to work with servicers, not to impede or impair their
maintenance of vacant properties. He encouraged servicers to
contact him if they have any questions or need
assistance. Robert Klein also agreed
that code enforcement
departments, working in concert with local law enforcement
agencies, can be of enormous assistance to servicers who are
dealing with adverse occupants or other issues complicating the
security of their assets.
The city requires owners of vacant properties to register such properties and to maintain hazard insurance. Registration is valid for one year. Properties must be maintained (i.e., kept secure, free of debris, etc.) by a responsible party to prevent the code enforcement department from taking action to abate the nuisance. Under the vacant property ordinance, the department has the right to require the property owner to post a watchman at the property, but Pura advised that this is a rarely imposed option, one the city makes use of only in extreme cases where the owner has failed to cooperate with other efforts. She also noted that Chicago has a special group of police officers who can be contacted for help with removing unauthorized occupants, and she urged servicers to contact the city if they ever have questions about how to proceed with vacant or neglected property.
Pura summarized the city's regular court-ordered demolition and the Fast-Track demolition programs. (Information about these demolition processes, rules and regulations for securing vacant buildings, and a wealth of other useful information can be found online at www.cityofchicago.org or at City of Chicago Department of Buildings.) Pura reemphasized the importance of direct communication between the lender and the municipality, reminding servicers that demolition can sometimes happen as soon as 45 days after notice. If she has contact information for a responsible party, she will try to make contact before proceeding, and if the servicer can promptly get the property boarded/properly secured, that will remove the property from the fast-track list. Pura advised also that the city will conduct a title search before demolishing a property, but servicers must record their assignments if they want to get notice of a pending action. Servicers have the right to file an objection if a property is placed in fast-track, but she warned that if such an objection is filed, the servicer will be held liable for all violations at the property, so this is yet another reason why it is in the servicer's interest to act quickly to secure vacant assets.
Robert observed that most cities do have strict penalties on the books that they can use to compel property owners to comply, but in most cases these more severe penalties are reserved for extreme cases, and generally cities will prefer to work in cooperation with servicers to abate nuisance conditions. Doug Leeper from the city of Riverside agreed that things have been improving and that servicers and cities are working together more effectively, which he attributes largely to the improved communication that comes out of discussion sessions like this.
Doug noted that Riverside, like many other cities, is dramatically shortening their demolition process. What used to take 18 months now takes only six, and in the near future the timeline for demolishing a nuisance building will be cut down to 90 days. He did comment that California has few vacant properties these days because of the current climate and the very active housing market, but local code departments are gearing up for that tide to turn in the not-too-distant future. Riverside is also looking into establishing receiverships, and Doug noted that if circumstances warrant, they will take action even at occupied properties.
He confirmed that the city will notify the servicer if anything more serious than an administrative citation is being issued. He also noted that any lien for city action at a property is a super-lien, taking priority over the servicer's interest in the property, and that if the city is does impose a lien, the lien will include all of the city's costs, including actual services, attorney fees, administrative/clerical costs, etc.
Robert asked for clarification about the cities' expectations of servicers, especially in view of the fact that there are legal restrictions affecting what servicers can do at properties that they do not own. Keith Woodcock of Dearborn indicated that it usually comes down to how the property is being maintained: if the servicer is in contact with the city and is responsive to requests, and if the neighbors don't object to how the property is being maintained, then the city is unlikely to ask the servicer for more extensive action at the property.
Keith indicated that his department will also try to notify anyone with an interest in the property of any pending action, but he warned that their county recorder's office is between four months and a year behind on updating their recordings, so he urged servicers to make contact with the city whenever they become aware of a vacant property. He also recommended that servicers register their vacant properties in Dearborn, though that registration program is presently voluntary. John Cascardo (Dearborn) also remarked on the importance of servicers' providing the cities with someone to contact in case an issue arises with a vacant property. He further commented that Dearborn's communication with Safeguard works very well and helps them get in touch with servicers to correct problem conditions. Illinois attorney Jill Rein agreed that servicers should communicate with their preservation companies to make sure that vacant properties are regularly monitored and remain secure, and that servicers stay informed about property condition and any circumstances affecting these vacant properties.
Stacy Baumann of WFHM raised the issue of more frequent inspections in "hot spots," noting that even where investor regulations don't provide for more inspections, local ordinances may. She also mentioned the importance of informing the local code enforcement department when a hazard claim is pending, so that the code officials know the servicer is working to address problem conditions. Keith Woodcock concurred, saying that Dearborn feels much more comfortable with how fire damage or other property damage is handled when an insurance company is involved, as they have had a lot of problems when public adjusters are involved, with property owners failing to obtain required permits, trying to complete repairs on the cheap, or just taking the insurance proceeds and never repairing the property. (He also said that the city will try to let servicers know if they see a situation like that developing.)
Doug Leeper, Keith Woodcock, and John Cascardo all said that their departments will also report to servicers if they discover illegal conversions (i.e., renting non-livable space like garages or basements as apartments).
Stacy also suggested that servicers who learn of violations on occupied properties should contact the local code department and advise that the property is occupied but that the bank is contacting the borrower. The servicer should then follow up with the borrower by telephone and mail, sending along a copy of the violation notice and advising that failure to cure the violation is a breach of the terms of the mortgage and may lead to the bank's accelerating the note. (Regular contact with the code department in such cases may also allow code to alert the servicer to a new vacancy sooner than they would otherwise learn of it.)
Jill Rein said that if a servicer learns of neglected fire damage or other major damage, they should refer that file to their foreclosure attorneys: even if the loan is current, they can often foreclose on the basis of waste.
Several panelists noted that if servicers fail to maintain the outside of a property up to local code enforcement's standards, then code enforcement will visit the property and write up all violations, which can easily mean demands for repairs in the tens of thousands of dollars. If, on the other hand, the property exterior is maintained and the property is secure, code has no reason to visit it and begin identifying interior issues that don't meet the building code. Mark Morrow and Doug Leeper agreed that their cities will not press other violations if the property remains clear and secure.
Doug Leeper mentioned again that his department has often heard from nationwide servicers that they cannot take any action before the property goes to sale, but he is aware that small local lenders are taking action when necessary, relying on their rights in the mortgage contract, and he asked why large servicers seem more hesitant to do this. He also reiterated that local ordinances where the municipality requires the servicer to take action at troublesome properties may extend some additional rights and protections to the mortgagee.
Mark Morrow suggested that the entire industry would benefit from forming a committee to establish once and for all what rights a mortgagee has to take action at neglected properties. Stacy Baumann said that all servicers understand the mortgagee generally has the right to protect and preserve an asset: to cut grass, secure, perform roof repairs, file insurance claims, etc. Most problems arise when it becomes necessary to contemplate removing anything. Servicers must use caution when identifying anything as "debris," unless it poses a clear and immediate hazard to health and safety.
Doug Leeper suggested that servicers ask the local code department to give them something in writing declaring that certain items constitute debris or trash and must be removed, and several panelists agreed that that would increase their comfort level, though regardless of additional support like this, the fact remains that it's very easy for a disgruntled borrower with little to lose to file a lawsuit against the servicer. Even though the servicer is ultimately likely to prevail in court, there are costs in attorney fees, delays to the foreclosure, and unfavorable publicity that make many servicers prefer to err on the side of caution when it comes to activity at a pre-sale property.
There was some discussion about how to deal with unregistered vehicles left at vacant properties. Dearborn posts a notice on the door for three days and then tows the vehicle. Mark Morrow and Doug Leeper said that their cities have the same process, though they wait for ten days rather than three.
Some servicers indicated they sometimes have difficulty in smaller municipalities getting assistance and cooperation from local code departments. The code representatives on the panel agreed that some smaller communities may not be as involved or proactive yet as the larger cities are, but L.A., for example, is reaching out to smaller communities to try to get them on board. And Dearborn invited servicers to have code officials from smaller jurisdictions call him for his advice on managing vacant properties.
Robert noted that improving technology has been a real boon in this field, as many cities' building departments have begun to develop web sites where they post information about specific problem properties in need of attention. Safeguard routinely runs the properties listed on some 30 city web sites through our system and reports any matches to our clients. Robert encouraged all servicers to make use of all available resources to help ensure that they are informed about vacant and/or neglected properties in their portfolios. As has been the case at past code enforcement panel discussions, the central message of the session was the importance of communication between the servicers and the municipalities. Over the past couple of years, various servicers, code officials, field service providers, and attorneys have all commented on just how much communication has improved and how all parties seem to have a much better understanding of each others' concerns about distressed properties. All of us look forward to continuing this important dialogue and expanding our contacts in the industry to assure that we keep both individual assets and whole communities safe and secure from deterioration. |
