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Many servicers are are having difficulty managing REO inventory volumes. Image: ThinkStock
Many servicers are are having difficulty managing REO inventory volumes. Image: ThinkStock

Steps to Avoid Municipality Code Violations

OCT 11, 2012 2:49pm ET
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The amount of REO inventory hitting the market is steadily increasing and many servicers and financial institutions are struggling to mitigate the risks inherent in managing this large volume of properties.

Alleviating liability and loss in the REO process is one of the crucial components of successful property management, and the increasingly stringent REO-specific municipality codes being adopted and enforced all over the country are testing management capabilities for some in the industry.

Local municipalities are stressed with shrinking budgets and decreasing revenue, causing a fundamental policy change to heavier regulation and stricter housing code enforcement on foreclosed properties.

Local municipalities have created higher standards of maintenance in an effort to maintain property values for the community.

At the same time, municipalities are increasing revenue by collecting interest and fees associated with code violations when these higher standards are not met. Accountability falls on the asset manager to preserve the property, maintain value and avoid code violations.

High attention to detail and immediate reaction to inspections are critical to shrinking risk to the asset, and ultimately its value, in order to drive profitability.

Finer-grain code requirements and compliance issues can be one of the more complex obstacles to overcome. Costly violations undermine the progress of REO management and can be avoided by following these simple steps:

Understanding the requirements of local code starts with identification.

Most REO asset management companies maintain a nationwide database to immediately identify the local municipalities and common violations for properties in that area. It is essential that all parties involved are aware of codes as early as possible in order to properly manage compliance with municipality-enforced timelines and scheduling maintenance. If a municipality determines that a property is not being kept to its standards, it will take control of maintenance and charge increased fees to do so.

Communicate.

Identify through inspections and/or appraisals all potential entities that could assign some sort of violation and provide updated contact/billing information to each. Constant communication about everyday activities will eliminate costly overlap time when violations are sent to incorrect parties instead of the appropriate property manager.

Be proactive!

Consistent maintenance and repair are valuable fundamentals in preventing costly violations. Create a scheduled maintenance strategy so that the municipality doesn’t begin to maintain the property at a cost often two to three times the actual cost. Additionally, inspect the property often. Keeping a property in good condition and making small repairs and maintenance can help avoid the look of blight and vacancy that many times are invitations to vandalism and code violations.

Teamwork is key.

Utilize listing agents and inspectors’ local knowledge as a “boots on the ground” resource to consistently monitor the condition of the property. Local listing agents and inspectors should be experts in REO for their market area and will be a primary resource in indentifying the code issues that need to be addressed. This local presence can be a helpful tool in negotiations to avoid violations. Local vendors many times have relationships in place in the municipality that ease the burden of tracking code violations for the servicer or asset management company.

 

Comments (1)
As a lawyer and consultant to cities on improving code enforcement in response to the mortgage crisis, please accept my compliments on your article. I would be very interested in conversation with you on this topic. Some of my work is out on the web, so you can determine if you want to engage in some dialogue.--kjl
Posted by Kermit L | Wednesday, October 17 2012 at 4:37PM ET
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