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
Code Enforcement Session (June 9th)
Link directly to Code Enforcement Session Audio Recording
 
Panelists: Mark Morrow (City of Los Angeles); Damien Borkowski (City of Cleveland); John Cascardo, Keith Woodcock (City of Dearborn); John Carter (City of Dayton); Sherilee Massier (WFHM); Doug Licker (MCS); Dan Blumenthal
Moderator: Robert Klein (Safeguard Properties)

Robert introduced the Code Enforcement panelists, and he commented that working in cooperation with code enforcement is a major part of assuring that assets in default are preserved and protected.  He explained that all of the city officials we talk with tell us that their primary concern is assuring that their communities and neighborhoods are safe and protected.  The best way for servicers and field service providers to help them accomplish this goal is to maintain open and regular communication with them.  When we work to foster this communication, we find that all vacant property issues are solvable.

The representatives from Dearborn spoke first, describing the city's policies with respect to code enforcement as focusing on causes rather than effects.  The Mayor has assigned the code department additional ordinance officers to support their increasingly proactive approach.  Keith Woodcock, Manager of the Existing Structures Division, and John Cascardo, Deputy Director of Building Safety, noted that their ordinance officers can call in from the field if they find a distressed property and get a telephone number for the responsible servicer (if the city has been provided with contact information), so that the servicer can be advised at once of any condition requiring attention.  Keith mentioned that the city has set up a voluntary vacant property registry to facilitate this contact, but he noted that so far, they have only gotten a dozen or so registrations.

Mark Morrow, Supervising Inspector for the Problem Property Resolution Team in Los Angeles, said that for the citizens of Los Angeles, the benefits of these partnerships between servicers, field service providers, and code enforcement have been enormous.  Mark emphasized that his team doesn't want to go out searching for unsecure properties and citing the servicers: they would vastly prefer that servicers monitor their properties and keep them compliant so that the city never hears about them.  And, he said, that is what's been happening in recent years, since these conferences have helped establish such strong communication between the different entities involved.  He said that Los Angeles does not want to demolish properties, noting that they have a housing shortage as it is.  Rather, the city wants servicers to keep vacant properties secure, safe from gang-related and criminal activity, and see them sold and occupied again.  Mark thanked the servicers and field service providers for their cooperation in helping to bring about such great improvement in communication and problem resolution.

Damien Borkowski, Cleveland's Manager of Citywide Services, said that Cleveland is not in the same position as L.A. as far as having a shortage of properties.  The city has far too many vacant, abandoned, and unsafe structures, and they will tear properties down if they are neglected and pose a danger.  He noted that the foreclosure process in Cuyahoga County is very slow, and at least right now there is no vacant property registry* and no fast-track demolition process.  It generally takes an average of three months for the city to demolish an abandoned structure.  He indicated that the city is working on a new web data base for tracking vacant structures, and he suggested that he would be able to provide that web address within a month or so.

Damien agreed that if a servicer hears from the city about a vacant property, that means the property is already a problem as a result of not being maintained.  He said that the department's inspectors have no reason to visit structures that are kept secure and maintained so that they do not appear from the outside to be unsafe or in a state of violation.  The city will take action to board openings at unsecure properties, and he commented that though the city does not currently hold the servicer liable for costs to secure, that is an option they are looking into.  He said that the city will post unsafe structures and send notices by certified mail, but the postings are usually ripped down within a day, and the mailings go to the tax address of record, so they frequently aren't very productive.  He commented that the city finds it very helpful when servicers or field service providers post their vacant properties.

Dayton Housing Inspector John Carter said that Dayton, like many cities, is beginning to get more aggressive about pursuing demolition of neglected vacant properties, noting that by June of this year they had razed more properties than they did the entire year prior.  He also pointed to the city's "shaming program," where they post a sign at the distressed property with the name and telephone number of the responsible party.  That name, he warned, could be the bank's CEO.  He agreed with the other representatives that if servicers can keep vacant properties secure and the yards maintained, the city will have no reason to pursue other building violation issues.

Robert remarked at this point that the message from all the code officials has been consistent: keep properties clean, secure, and mowed, and communicate with the city so that any issues that arise can be directed to the appropriate person for resolution before more serious action becomes necessary. 

He also asked code officials to keep in mind what we have explained to them before: that servicers have only limited rights at pre-sale properties.  The officials responded that if a servicer gets notice of a violation at a pre-sale property, the servicer should contact the city and let them know where things stand in the foreclosure process.  If there's an action pending and a timeline for completion, let the city know--and provide them with a number where they can reach someone in case of a situation of increased urgency.

The importance of assuring that all assignments are recorded was also noted, as was the fact that registering properties with city vacant property registries (where available) can help assure that officials know who has an interest in a vacant property and how to reach the appropriate contact person if problems do arise.  Some servicers have previously expressed concern about whether registering a vacant property equates to or might be interpreted as the servicer's "taking possession" of the property, but servicer WFHM indicated that they have not had a problem with this, especially when they communicate with the city about the property's status. 
 
Keith Woodcock advised that Dearborn's registration form includes space to indicate the status of the registered property, remarking that the city too is learning how to better manage the difficulties associated with properties in default but still legally in the possession of the borrower.

There was some discussion about where notices are likely to be sent if the property has not been registered or the servicer has not been in touch with the city.  (For example, the city may have access to records that show a tax mailing address or a final documents address for the servicer, and they may direct notices there if they have no other contact information.)  Mark Morrow suggested that the staff taking in mail at such addresses should be trained to direct notices from the city to the appropriate department for prompt action.

We then referred to the Code Enforcement booklets distributed at the session, noting that the slides from PowerPoint presentations prepared for previous conferences were included there for review.  Robert commented that Safeguard regularly reviews 48 different cities' public records/reports about red-flagged properties, cross-referencing those with our system and notifying clients whenever we identify one of their properties.  He noted that many more cities are currently developing similar resources and programs to help all concerned parties become better informed about the condition of vacant properties.  John Cascardo agreed, remarking that Dearborn urges their code department officials to think of themselves as code administrators rather than code enforcers: their program is designed to encourage communication and find ways to resolve problems, not simply to impose penalties for violations.

Mark Morrow of Los Angeles mentioned the Los Angeles rule requiring the installation of an 8-foot perimeter fence around a vacant property to prevent unauthorized entry.  Enforcement of this rule had been discretionary, he said, but it is now mandatory, meaning that any time the city becomes aware of a vacant property, they will require the servicer to install the perimeter fence.  He said that the key, therefore, is to make sure that the city does not become aware of the vacant property, and servicers who take all possible steps to assure that their vacant properties are maintained and secure can greatly decrease the likelihood that they will come to the attention of the city.  (It was noted, however, that there are some cases where an abatement may actually be advantageous to the servicer, such as when transients occupy a vacant property: the city of Los Angeles will remove and arrest vagrants occupying an abated property, where the servicer would have a more difficult and time-consuming road to removing such occupants.)

The discussion turned to current loans with violations.  Servicers explained that the mortgagee has no right to enter onto a property where the loan is current, unless they opt to accelerate the note on the basis of the violation as non-monetary default.  If the property is facing demolition, the servicer may elect to do that, but barring such extreme circumstances, servicers are unlikely to accelerate and initiate a foreclosure on the basis of fairly routine violations.  Mark Morrow suggested that if a property with a current loan is found vacant and in violation, he would be willing to arrange for a city contractor to perform the work to cure the violation and for the servicer to pay that contractor directly.

There were questions about whether code enforcement can help servicers get inspectors into gated communities or multi-units with common entrances to inspect for occupancy, etc., as it's well known that investors will not accept inability to gain access as an excuse for failure to inspect.  Keith Woodcock indicated that the code department would need to show cause to enter private property, but he suggested that the city should have information on file for the management agency or homeowners' association.  He mentioned the possibility of getting a warrant to enter if the unknown occupancy status posed a danger--for example, if the property had a common fire-suppression system and the undetermined status threatened the integrity of that system--but generally he suggested that the servicer should try to contact the HOA for access.  Failing that, servicers can contact the city, and they will see what they can do to help.

We noted again that if the city's securing requirements differ from HUD's requirements, the servicer should follow local rules.  The guidelines do instruct servicers to comply with local law.  (Mark Morrow noted that the city of L.A. considers HUD's regs the only acceptable alternative to the securing requirements set forth by L.A. code.)  If a municipality requires boarding, for example, the servicer should ask the M&M for approval and provide information about the statute/ordinance that requires boarding.  There was general agreement that if there is any discrepancy between the M&M's instructions and those from code enforcement, code enforcement's instructions should prevail. 

There were a number of remarks from code officials and servicers about how much communication has improved and how much easier everyone's jobs are becoming because of that.  Mark observed that the servicers who were represented at the sessions were consistently the same servicers who have shown so much improvement in their responsiveness to issues in the field, and other code officials agreed.  Servicers also had very positive feedback about the results of improved communication, noting that now they have code people who know them and will contact them directly if a vacant property begins to show signs of becoming a problem.

*Since the conference, Cleveland Mayor Jane Campbell announced a new Zero Blight Initiative.  This Initiative is expected to include the establishment of a vacant property registry.