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After struggling for the past four years to work through warehouses full of delinquent loan files, most servicers might feel like they deserve a break. Unfortunately, city officials across the country have something else in mind. Increasingly, the industry's mortgage servicing firms are being called to task for failing to maintain properties that they have not even taken back through foreclosure yet.
A number of stories in the mainstream press have pointed to municipalities filing legal actions against servicers for the maintenance and upkeep of properties that investors haven't taken back yet. Traditionally, it is not up to the investor or servicer to perform property preservation work on these homes, but the courts could change that.
It is not yet clear what the results of these actions will be and whether those rulings will be upheld by the appellate courts. What is clear is that by the time the servicer gets its legal department into court, the amount of time and money lost will be significant. The cost of maintaining properties that the bank does not yet own is significantly less than the cost of a legal battle, whether the servicer wins or loses. The servicer must find a way to keep these conflicts from escalating.
In most cases, the key to keeping one of these conflicts from turning into a legal battle rests with the municipality's code enforcement official. It is this professional who will respond to cries from the neighborhood and who will bring a recommendation to the city. This official can be either a hindrance or a hero to the servicer, depending on how he is approached.
Building a strong relationship with code enforcement officials early can mitigate the risk of legal trouble with the municipality. Doing so is easier if the servicer or its agent understands the stress that comes with this public servant's job.
Code enforcement departments often become the de facto ‘first responders’ for foreclosed properties, as other homeowners in the neighborhood call on them at the first signs of an abandoned property. Over the past few years, these professionals have seen their caseloads increase significantly at the same time municipal budgets have been tightened. Cities around the country are responding to the downturn with neighborhood stabilization strategies that often fall to code enforcement officials for implementation and oversight.
Understanding the stress these officials are under will make it easier for the servicer, or its agent, to start off the relationship on the right foot.
There are endless ways to foster a professional and positive relationship. Finding common ground or expressing an understanding of the difficulties the code enforcement officials face in their daily work can be an easy icebreaker.
When first contacting the code enforcement department, a servicer should provide an email address and a 24-hour emergency number. The servicer must make a representative available to respond to any problems the code official finds. It is much better to respond to a phone call than a written summons.
As with any relationship, it is important that servicers remain courteous and polite in conversations with code enforcement officials. General respect and cooperation are necessary to foster positive interactions. Using a ‘good neighbor’ approach, as well as creating the atmosphere of working toward a common goal, is beneficial. It is helpful to express concern for the officials' community and respect for their position.
It is essential that servicers check in with these code enforcement officials on a regular basis to ensure absolute compliance with all municipal ordinances, and it also demonstrates a genuine concern for the officials' professional needs.
When a problem does escalate, having a relationship in place with the code official can make it possible to keep the conflict from landing in court. Upon receiving a written notification from the municipality, the servicer, or its agent, should gather the required information, including violation numbers, a full description of the charges and a plan for dealing with the problem.
Code enforcement officials are instrumental in helping diffuse a problem; therefore, it is important to express sincere gratitude and assure them that all violations will be corrected in a timely manner.
With the right relationship, the code enforcement official will emerge as the servicer's hero instead of as a hindrance. But every hero needs a sidekick who can provide the support he needs to appear invincible. It is up to the servicers, or their property preservation companies, to play that role.
Derrick Logan is senior vice president in the strategic alliances department at REO Allegiance, a property preservation company based in Bayonne, N.J. He can be reached at email@example.com.