The 2006 MBA National Conference, held Feb. 14-17,  the P&P session was moderated by Caroline Reaves, President with First American Default Services, and included panelists Robert Klein and representatives from HUD, servicing agencies, and field servicing companies.

The Property Preservation Presentation served as the agenda for servicers and field service providers seeking clarification of HUD guidelines.  The discussion focused on differing interpretations of these guidelines between not only the servicer and M&M contractor, but also fluctuating interpretations among each individual M&M contractor.

HUD ML 2002-10 requires servicers to submit a first bid and second, independent bid for debris removal when the debris cannot be removed for the allowable; however, several of the M&M contractors request second bids on all first bids submitted.  For example, many second bids are being requested for normal household chemicals, such as several cans of paint, detergents and bleach, despite prior communication from HUD clarifying these everyday household chemicals are not a health and safety hazard and can remain in the property.

HUD representatives verified that servicers are only required to submit first and second bids for interior and exterior debris.  M&M contractors are permitted to request second bids if they feel the first bid is unreasonable or excessive; however, they must detail why the first bid is unacceptable to justify the out-of-pocket expense for servicers and be aware of timeframe issues. Services have reported tremendous improvement in M&M contractor timeliness in recent months, with the exception of MC&B in Ohio and Michigan. Per the current M&M contact, MC&B is required to provide responses to over allowable requests within 10 days, rather than the five business days required for all other M&Ms. M&Ms and servicers will work together to improve the second bid process; however, servicers should always forward all supporting documentation when questioning the validity of a second bid request.

Servicers are also encouraged to provide thorough and clear documentation supporting a request for extension to convey. Servicers have been delayed in performing preservation work because of changes in first time vacancy date and eviction and foreclosure laws, as several states require a legal eviction of personals before a servicer can go forward with securing and conveyance. In addition, bankruptcy laws have prevented servicers from securing and winterizing vacant properties without authorization from the bankruptcy trustee.  Servicers awaiting the issuance of a court order to evict personals or those attempting to establish contact with a bankruptcy trustee should provide the M&M contractor all possible documentation to support the extension and ensure it is granted, and also to protect themselves from a claim of mortgagee neglect.  

Roof deterioration can also lead to the need for an extension to convey, as HUD ML 2002-10 provides servicers with an emergency allowable of $250 to take protective measures to prevent further deterioration of roofs and interior water damage. Patching or repairing the roof is the preferred method to preserve a property; however, the $250 allowable does not usually cover the cost of patching or repairing when a licensed roof contractor is required, so servicers proceed to tarp the damaged roof to prevent water infiltration.  HUD agrees tarping is a viable cost-effective option and properties can convey with a tarp if the roof damage is very minor and truly a result of mortgagor neglect; however clear, supporting documentation must be provided when the claim is filed at conveyance.  M&M contractors should be granting requests for extensions to convey when roof repairs are required and bids to repair are approved.

If a servicer at all fails to perform reasonable due diligence to protect a property, any extension to convey can be denied with an explanation clearly detailing the servicer failure.

Extension requests beyond 90 days should be submitted by the M&M contractor to the GTR in a timely manner for review.  However, all parties in the conveyance process would benefit from the M&M contractors receiving temporary authority to approve extensions beyond 90 days in the hurricane disaster areas. This implementation would would create efficiency for not only the servicer, but the M&M and GTR.

At the time of conveyance, M&M contractors are routinely requesting servicers to provide a complete, full history of all inspections.  HUD agrees with the requests for damaged properties and unusual situations that pose concern, yet the request should be an exception and not a general rule.  Examples will be reviewed by HUD and addressed as a training issue with the M&M contractors.

Servicers are required to obtain pre-approval to convey properties when they are being conveyed with surchargeable damages, and if a mortgagor fails to perform work required for conveyance without approval, HUD may reconvey the property to the servicer. HUD non-performance letters can be issued if the mortgagee neglected to perform work required by the guidelines and not claimed for reimbursement. A HUD demand letter can be issued if the mortgagee failed to complete work claimed for reimbursement or failed to report damages in excess of $2,500.

HUD non-performance and demand letters have served as an excellent training tool for the servicers and the field service providers.  The non-performance and demand letters do affect the servicer rating and scorecard and servicers would like supporting documentation and photos to accompany the letter issued.

In turn, servicers are required to provide sufficient and clear documentation and photos to support all work claimed for reimbursement. Servicers and M&M contractors would benefit from the standardization of photograph requirements, as servicers provide digital photos from the field; but, M&M contractors often utilize photos not representing the same angles, perspective, or quality required by HUD auditors when supporting their claims of non-compliance.

When properties are conveyed to HUD with damages or any amount of non-compliance with the guidelines, the M&M contractor has the right to reconvey the property to the servicer or reduce the claim for reimbursement. Servicers can withdraw their request to convey when they discover a compliance error; however, they would also like the opportunity to correct an error when it is a financial benefit for the servicers and/or HUD. Servicers are able to claim work completed after the conveyance date, according to HUD, as long as the interest is not claimed for reimbursement. Servicers are required to obtain pre-approval to reconvey a property back to HUD.

M&M contractors are not permitted to issue an administrative offset before the appeal process to the GTR and/or HOC is finalized.  Examples of offsets issued during the appeal process should be escalated to HUD for review. 

Servicers' insurance claims for reimbursement are being denied or reduced when a lien is assessed and not cleared prior to default status.  HUD recommends that servicers consult legal counsel and possibly re-evaluate their business decision of not initiating foreclosure for loans with only technical default.  It is the servicers' responsibility to protect collateral and remain in compliance with the guidelines.

The goal of the P&P session was to serve as a platform to address industry issues, ensure consistent guideline interpretations and guarantee the best care is given to all properties.  Working to strengthen the lines of communication between HUD, the M&M contractors and servicers will only help to improve and streamline each step in the conveyance process and ensure all property preservation methods are of the highest efficiency. We rely on HUD's participation to recognize the presented issues and work to establish clarification, guidance and insight that will foster a positive industry consensus for the best servicing of properties.