Link to Audio Recordings for All 3 Preservation Sessions from USFN National Seminar 2005

USFN Spring 2005 National Default Servicing Conference
New Orleans, LA June 8th - 10th
Conventional Preservation Session (June 9th)
Link directly to Conventional Preservation Session Audio Recording

Panelists: Doretha Davis (VA); Sherilee Massier, Stacy Baumann (WFHM); David Ligammari (M&T); Yvonne Neighbor (Countrywide Field Services); Caroline Reaves (First American Default Solutions); Allan Martin, Doug Licker (MCS); Paul Magaha (First American Field Services); Bill Golson (Golson Law Firm); Dan Blumenthal
Moderator: Robert Klein (Safeguard Properties)

Moderator Robert Klein opened the session by introducing the panelists and thanking them for their participation.  He also thanked the USFN for continuing to support these discussion sessions, noting that these opportunities to get together and exchange ideas really help everyone in the industry better understand what our respective clients and the investors/insurers want and require of servicers and field service providers.

Robert introduced Doretha Davis of VA's Houston Regional Loan Center.  Doretha referenced the VA booklet that Safeguard put together for the session, containing current information bulletins and loan guaranty letters for the different RLCs.  She reiterated that VA expects servicers to follow local ordinances for maintaining vacant properties, and she emphasized the importance of submitting invoices to VA to document all preservation activity.  VA expects servicers to report vacant properties within 15 days of discovering vacancy, noting that VA may make its own efforts to contact the borrower to determine whether the property is only temporarily vacant or otherwise not abandoned. 

With respect to the directive by VA that servicers only change locks if they need to do so to gain access, Caroline Reaves noted that servicers will always require access to a property to check for damages.  Doretha acknowledged that necessity and suggested that it wouldn't be necessary to resecure if the servicer had keys to the existing locks.

Doretha said that VA recommends dismantling and removing above-ground pools at vacant properties.  David Ligammari pointed out that that instruction could present a problem at pre-sale properties, where the rule of thumb is to do only the bare minimum necessary to protect the asset.  An above-ground pool is considered personal property, and servicers do not remove personal property from pre-sale properties, only health hazards and exterior debris that is preventing a grass cut or may create a violation.  Robert noted that this brings up an important issue affecting all servicers of investor- or government-insured loans: none of the guidelines distinguish between pre-sale and post-sale properties, although servicers' rights and customary courses of action are significantly different in pre-sale from those in post-sale.  Doretha indicated that she would review the issue of pool removal with the Houston RLC supervisor.

Caroline Reaves asked if VA has given any consideration to issuing a national guidelines letter.  Doretha indicated that VA is in the process of redesigning their program, and a number of procedural changes are anticipated.  She reiterated that VA's basic guidelines message, across the board, remains that the servicer should do what's necessary and reasonable to protect the asset. 

There was a question about whether to secure one door or all doors at a property.  Robert said that the common practice is to secure only one door in pre-sale, so as not to deny the mortgagor access.  Again, servicers of pre-sale properties do the bare minimum necessary to protect the asset.

Doretha confirmed that VA does not require interior inspections, although servicers must be sure they are adequately inspecting properties, and she wondered if a servicer who performs no interior inspections is really adequately inspecting and checking for damages.  She asked if interior inspections can be performed for $15 per, and the field servicers advised that interior inspections are currently being done for that amount--although HUD has indicated that the upcoming new preservation and protection mortgagee letter will include a 20% increase in inspection allowables (though there is no information about when that new letter is expected to be released).  Field servicers also confirmed that exterior inspections are not simply "drive-by" inspections, that the inspector must get out of the car, walk around the property, check utility status, and look for other signs of occupancy or vacancy (except for bankruptcy inspections, which are "no touch"). 

There was discussion then about how to proceed when a property that has previously been secured is discovered on a later inspection to have had the lock-box or servicer's lock removed.  Robert advised that SPI will typically stop interior inspections when this occurs and report that the property is "vacant but not abandoned," as the property has evidently been accessed and/or reoccupied by the borrower.  Sherilee Massier stressed that these circumstances must be thoroughly documented by the investor.   Allan Martin questioned whether a property can be reported as "vacant but not abandoned," or anything other than "occupied" or "vacant." 

Bill Golson suggested that the inspection should evaluate the same factors that led to the original determination of vacancy.  That is, if the property was called vacant because the grass was overgrown, the utilities were off, and there was no personal property, if those things all look the same and the only change from the last inspection is that the lockbox has been removed, the property should still be called vacant.  Paul Magaha, however, agreed with Robert that the fact that the mortgagor has apparently accessed the property is significant information.  He suggested that the field service provider should report all the available information to the servicer and ask the servicer to instruct whether to resecure the property.  David Ligammari made the suggestion that if the re-entry to the property looks like someone "exerted some control" over the property (i.e., if the lock change looks "clean" rather than like entry by an unauthorized party), the servicer can send the borrower a second "vacant-will-secure" letter advising them that unless they contact the mortgage company, the servicer may enter onto the property to protect the asset.  Doretha suggested that the same goal might be accomplished by posting the property with such a letter.

There was a lot of emphasis on completely documenting efforts to verify that the property is in fact vacant, including the basis for calling it vacant, the reasons why the servicer deemed it necessary to enter the property, etc.  Bill Golson stated his belief that any entry into a pre-sale property should be supported by a court order, or perhaps documented with not just still photos but videotape of the whole process from the moment of arrival at the property.  Dan Blumenthal also suggested that contacting the local police to advise them that you have found the property vacant and are going to take preservation action can serve as additional evidence, should the borrower complain, that the servicer was acting in good faith.

Allan Martin noted that many regions' laws of trespass conflict with the investor/insurer guidelines, and when it comes down to a lawsuit, these laws supersede the investor/insurer requirements.  He asked if the investor/insurers would ever take on some of the liability associated with actions that they require the servicer take in order to be in compliance with the guidelines.

It was agreed that there are a number of variables that have to be taken into consideration, including (but not limited to) the stage of default, the weather and time of year, vulnerability to flooding or other damage, and the property's occupancy history, so these situations really have to be evaluated on a case-by-case basis.

The conversation turned to other inspection issues, including FEMA inspections.  It was noted that HUD has said they will consider allowing an out-of-cycle inspection for properties located in FEMA-declared disaster areas, and the servicers asked if VA would consider making a similar allowance.  Doretha indicated that VA would want to hear more about this before making a determination.  Robert noted that you should not generate an additional inspection for a FEMA disaster if the regular monthly inspection is coming up soon.  There was discussion about how long it sometimes takes for FEMA to issue a declaration; Doretha said that VA promptly issues disaster bulletins as soon as they become aware of a severe event.  (Caroline also noted that there was nothing to be lost by asking for permission to do an additional inspection after a severe event but before an official declaration.)

There was some brief discussion about what can be done if the servicer discovers damages after bidding full credit.  In some states there may be a possibility of having the sale reversed, depending on when the damage occurred relative to the sale date and whether the servicer should have known about the damage.  Robert noted that if the property has been vacant, the servicer should know about any damages.  This speaks again to the importance of interior inspections: regular monitoring of the property interior allows the servicer to catch incipient damage before it progresses and/or to promptly file hazard insurance claims when appropriate.  Servicers also wondered how to bid at sale if there are known damages and a pending hazard claim but no information yet about how much the servicer will ultimately recover, or if the claim might yet be denied.  Most servicers recommended getting an extension and settling the claim prior to sale. 

Caroline commented that VA seems sometimes to penalize servicers even when delays are beyond the servicer's control, as in the case of a hazard claims filing, in that no interest will be paid after the cut-off date.  Another servicer commented, however, that when they have fully explained and documented the reason for the delay, they have found VA willing to push back the cut-off date.

The session ended with some brief discussion about personal property and the different regional codes and ordinances governing how personals can be cleared from a post-sale vacant property.  It was agreed that mortgagees can never convert personal property, but a licensed warehouseman does have the right under the UCC to dispose of stored property after 30 days of storage and a 10-day notice letter to the borrower's last known address.  There was a suggestion that a similar letter--advising that the servicer has taken possession of the house and that it will be cleared of all remaining debris and/or personal items if no one contacts the mortgage company within X number of days to claim them--could be posted on the property and delivered to the last known address; while this would not be sufficient to protect the mortgage company from all potential claims, it could go toward demonstrating that the bank acted in good faith.