Add Local Property Ordinances to Mortgage Reg Headaches
As if the flood of national mortgage regulations wasn’t enough, city and state ordinances are posing problems for property preservation firms and servicers.
Code enforcement officials who are responsible for enforcing these guidelines have also struggled to interact with field service providers and servicers if a problem exists at a property.
“We all don’t want the same thing—properties that are abandoned and vandalized causing blight in communities,” said Susan Galloway, a supervisor at PNC Mortgage, during a code enforcement session at the 2013 National Property Preservation Conference.
“Building relationships with code officials is important so they can call you up and say ‘we’ve got a problem with this property, can you help me?’ Education between all the parties about what we are actually able to do, what we want to do, and what we can’t do with all the guidelines is critical.”
The challenges plaguing field service providers today are either greater enforcement of ordinances already on the books or ordinances being added related to occupancy standards and property registration requirements.
Rules are being put in place that affect who holds title to a property, which therefore slows down the foreclosure process on a distressed mortgage. Cities are also utilizing a more aggressive use of receivership today, including condemnations and demolitions.
Ordinances are being introduced because local government officials don’t understand the end goal that Freddie, Fannie and HUD have for the properties, such as becoming an REO asset, says Steve Meyer, AVP of high risk and hazard claims at Safeguard Properties.
“They’re putting something in place because they’re assuming it’s never going to get in a certain condition,” Meyer says. “What’s happening right now is code enforcement is stalling the process. It’s not getting moved through because we’re struggling to get the property in compliance with all the requirements and regulations that we have to follow.”
For example, some local ordinances contradict state requirements that prevent a field service provider from starting their job, such as waiting until the borrower goes through the loss mitigation process with their servicer. This makes it hard for a property preservation company to meet the city’s overall expectations in maintaining a bank-owned home effectively.
From a code enforcement perspective, single-family rental timeframes are a big issue for cities when imposing ordinances due to the changing environment in the housing industry. As more homeowners become at-risk to foreclosure, they are deciding to rent out their property.
“Now you have an inexperienced landlord or tenants taking occupancy. This could present somewhat of a crisis situation for us because what you’re looking at is occupancy issues potentially and wear on the interior of the property,” says Laura Rouse-DeVore, code enforcement officer with the Village of Montgomery in Illinois and president of the Illinois Association of Code Enforcement.
The single-family rental issue is challenging for property preservation companies too because they may not be able to do maintenance services on a foreclosed asset they registered with the city if it is occupied. If this happens, the city then blames the field service provider for any violation that isn’t fixed.
“There has been greater involvement from the servicers in terms of taking care of properties that may even be occupied externally,” says Tracy Hager, vice president of operations at Mortgage Contracting Services. “They are recognizing that they don’t want to be on the bad side of the city, so even in bankruptcy conditions, servicers are warning us to cut the lawn and take some measures that obviously the homeowner/tenant is going to benefit from.”
The problem servicers face is they have mortgage loans nationwide that have to be maintained when they go into foreclosure. But code ordinances vary from city-to-city and servicers are not aware of which rules to follow.
“It’s all about trying to figure out how to communicate with code enforcement in order to comply with all these rules and regulations coming at us from various sources,” says Dennis Gierula, vice president and operations manager at JPMorgan Chase.
All field service companies and servicers have departments dedicated to violations and want to connect with the cities to fix any violations immediately. However, due to staff reductions happening within city code enforcement offices, officials are only in the office for a minimal amount of time before they spend all day in the field.
In Mesquite, Texas, every code officer’s desk phone has a device that directly transfers calls to a mobile device, basically creating 24/7 contact ability.
“We want to work with the property preservation companies, but don’t want to be a property maintenance manager,” says Sherri Johnston, environmental code manager for the City of Mesquite. “I don’t like it when we get phone calls asking us to check a property when you’re already paying someone who should be doing that. I don’t mind it if someone calls and asks us what violations do you have on this property?”
Code compliance will be an ongoing issue for preservation companies and servicers to meet in the future. Advocacy and education at all levels will be important in order to protect that mortgages rights and meet the investor requirements associated with it.