Responding to Vacant Property Registration Demands

APR 24, 2012 11:43am ET
Comment (1)

Until recently, the deterioration of properties didn’t pique the interest of servicing agencies until it was clearly designated REO and, until recently, this was all well and good. But the winds have changed. Emerging risks have forced the hands of desperate municipalities to enact ordinances requiring servicers to register their vacant properties.

Prior to the economic downturn, the primary goal was always to keep the paying borrowers in their homes. However, the dark side involves the increasing number of borrowers that skip out before the completion of the foreclosure procedure, abandoning the property, and leaving it in disrepair or even worse condition. Often the property remains under the radar for months before the servicer becomes aware of its neglected condition.

This presents municipalities with steadily declining home values, reluctant investors, and decreases in new construction. In turn, it erodes the tax base that communities rely on to maintain the safety and preserve the integrity of the neighborhood. Adding insult to injury, the citizens that remain in their homes are penalized when the foreclosed properties next door are not maintained, and their own property values plummet.

Securing and maintaining a single property can cost a municipality between $5,000 and $34,000, according to one Harvard study. With increasingly limited resources and rising costs, local governments are turning to the servicers as a solution by requiring them to contribute information to vacant property registries. This registry makes it easier to find the financial institution that owns the responsibility for a vacant property and is most likely to maintain it to reduce its own loss severity.

In response to the Vacant Property Registration Ordinances being enacted nationwide, MBA is suggesting to utilize the Mortgage Electronic Registration System (MERS®) database. MERS maintains a list of property preservation contacts as well as a list of MERS servicers’ IDs. In the near future, MBA will be launching a demonstration of an enhanced registration system using MERS designed as an alternative to state registration systems, but that may have unforeseen glitches and isn’t available in the now and present.

Responding to these new VPR demands has forced servicers to change the way they think about property inspections. They are managing their risk and receiving some additional benefits as well. The obvious advantage is loss prevention; failing to maintain these properties can lead to the loss of the asset, therefore investors have embraced the idea of vacant property registration and are now demanding it.

But is it a band-aid solution? The question remains whether VPR will create more challenges or become a tangled web of bureaucratic finger-pointing that will, in the long run, outweigh the benefits.

Comments (1)
Very good information.
Posted by | Wednesday, April 25 2012 at 5:42PM ET
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