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FEB 13, 2013

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Facing the Slippery Slope of Code Violations

FEB 13, 2013 5:16pm ET
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Code violations are a slippery slope. If not careful your property might descend into lien oblivion, racking up enormous fines that create unwanted risk for investors.

In today’s environment the municipal wolves are circling properties in distress, seeking out the overgrown grass and unmaintained yard. Those municipalities whose financial woes have pushed them to the precipice of financial ruin regularly target the mortgage servicing industry.

Although little is done to sway these activities by the industry as a whole, investors are holding preservation companies more and more accountable. From large urban cities such as Chicago to small towns like Zanesville, Ohio, it is our civic leader’s responsibility to protect their constituency and uphold property values.

This unfortunately leads to heavy fines on bank owned properties that can cripple an assets value beyond reconciliation.

Community leaders are unconcerned over who the responsible entity is. Whether the prior mortgagor, the loan servicer or the bank, someone needs to accept responsibility and take action. Despite including all parties on legal notices, all too often over the past few years none of those parties have stepped forward.

This unfortunately portrays the mortgage servicing industry as a significant cause of neighborhood blight.

There are ways to minimize the types of risks associated with code violations. Investors must be aware of the pitfalls and use their preservation vendors as a resource towards prevention rather then reaction. The days of a vendor simply cutting the grass and completing a trash removal at the property are over. Today, investors must leverage the full resources of their preservation vendors to develop a new paradigm based on grass roots civic engagement.

Preventing violations from occurring and more importantly, quickly resolving those that do will build the necessary foundation for collaborative relationships with our community leaders.

The mortgage servicing industry, through their preservation vendors, can impact communities on a much greater scale, reduce liability and experience greater profits if the focus shifts towards this end. A favorable outlook from the local code boards on a national scale will help assuage millions of dollars of fines annually.

As professionals and neighbors we must always seek out what is best for the community and our business. Oftentimes these paths intertwine.

Perhaps I approach this matter with some naivete. Perhaps I believe in an industry where distressed properties can add value to a community. After all, we are not dealing with assets, we are not dealing with properties, these are homes and the sooner we figure that out, the sooner we can rebuild our communities.

Reid Schermer is a code compliance professional in the default servicing Industry.  

Comments (3)
The biggest issue that the industry faces is the Asset Management companies do not compensate on a level near enough for the quality required. Should that change then the vendors would be able to deliver the quality service necessary. The investors, lenders, banks, need to take a hard look at the industry and remove the graft. The financial institutions of the mortgage industry should really examine moving the preservation work back to the local business communities. Stop the unrealistic practice of paying the lowest bidder to preserve multi- billions of dollars in assets. Until this practice stops the only service that can be afforded is sub-standard, "you get what you pay for" type work.
Posted by Aaron Aveiro | Thursday, March 07 2013 at 9:05PM ET
Aaron brings up a very valid point. I will take it one step further, most preservation companies are not equipped to handle code violations. Here in Illinois you need to hold a license in each and every town that you do work in and that adds up, basically you have to be knowledgeable in plumbing, electrical, carpentry and HVAC. You also have to have a licensed in each of these fields. Most asset managers or investors want things done one the cheap side so they try to bypass this. Unfortunately, if the home has been tagged by the City or Village then you will have to hire a licensed professional registered with that City or Village since they will require permits and inspections. This brings me to my point. Some of the nationals, asset managers and investors will ask the preservation company to perform this work and some of the preservation companies out there will attempt to do it to try and make more money since the initial work is barely profitable. What these preservation companies on the local end don't realize is that, once they start the repairs, they are now on the hook for liability issues.
Posted by All Around The House | Friday, March 08 2013 at 9:06AM ET
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