Servicers Need Make Sure They Know What the Law Requires

New regulatory requirements servicers are expected to know about and comply with may not be very attractive to read or familiarize with all, but ignorance is no defense to violating the law, in any circumstance.

Simply because as explained by the legal principle Ignorantia juris non excusat, or "ignorance of the law does not excuse," pleading as a victim of the unknown is not a valid reason to plea one's innocence to actions deemed unlawful. This standard also applies to servicers who are faced with interpreting their landlord responsibilities from passage of the Helping Families Save Their Homes Act of 2009. They must be cautious, but also thorough in their new role to manage tenant occupied foreclosed properties, as well as maintain awareness of the risks associated with the liability of these tenants. Otherwise, adhering to state and local landlord/tenant codes could prove troubling and costly. Servicers are tasked to find meaning in the federal legislation affecting landlord/tenant law. The Helping Families Save Their Homes Act, which went into effect on May 20, 2009, is designed to implement another solution to help relieve some of the mounting pressures on the economy and housing market spawned by the steady, if not growing, number of foreclosures. It attempts to define uniform standards for dealing with tenants of foreclosed properties, but instead it has left the servicing industry to establish best practices in notifying and responding to individuals of tenant occupied homes. Unlike the orderly processing of a standard foreclosure that has specific timelines and reporting procedures, dealing with tenant occupied homes presents additional risks, costs and required attention on behalf of the property owner, which in many cases now becomes the servicer once ownership shifts to the bank or specialized servicing shop. Non-vacated homes will have unexpected situations arise - for instance, the heat going out at 3 a.m. - that need to be acted upon immediately. Expected and sometimes demanded turn times for repairs have dropped dramatically - from days to literally hours. If and when any such issue occurs and it is not resolved within the appropriate timeframe, the occupants can bring on valid claims to take legal action against the servicer.

Additionally, several state "traps" exist for servicers with tenant occupied homes. Until now, landlord/tenant law and foreclosure law were dealt with on a state-by-state basis. Both state and local ordinances can be comprehensive, detailed and onerous. Hopefully, the following use of Massachusetts' statutes as a case study for what is a national issue will help broaden the awareness to industry professionals of some requirements that are necessary to remain in compliance.

Mostly as a response to the steady increase in the foreclosure volume, Massachusetts - like many other states across the U.S. - is becoming increasingly vigilant in its attempt to maintain and 'preserve' recently foreclosed properties.

What can be viewed of primary significance when discussing some of the state's guidelines that apply to property preservation is the Massachusetts State Sanitary Code, Chapter II (105 CMR 410.000 - Minimum Standards of Fitness for Human Habitation). This code outlines in great detail the responsibilities of any Massachusetts property owner - now inclusive of servicers with tenant occupied properties - that pertain to the minimum standards of habitability for proper maintenance of each of his or her rental properties.

These and other local statutes often are quite voluminous. What is more, many of them are particularly important regarding properties in pre- or post-foreclosure. Some notable, regularly appearing responsibilities that fall in the court of landlords include: requirements for potable water, hot water, heating, plumbing, electricity and gas; guidelines for providing locks, smoke detectors, carbon monoxide monitors and pest control; standards of various structural elements and property appearance; as well as posting of an emergency contact. Here are some examples taken from the Massachusetts State Sanitary Code:

Heating Facilities Required (410.200) - The owner must provide and maintain an operational heating system for each room (portable or temporary heating is not an acceptable form of heating under this statute).

Posting of Name of Owner (410.481 and M.G.L. c. 143 3S) - The owner of a property, who does not reside in said property, must post and maintain at a location visible to the residents (preferably near the tenant's mailboxes) a sign not less than 20 square inches indicating the name, address and telephone number of both the owner and a 24-hour contact to deal with emergency property issues.

Maintenance of Areas Free from Garbage and Rubbish (410.602) - The owner of a property, vacant or otherwise, must maintain this land in a "clean and sanitary condition and free from garbage, rubbish or other refuse."

When landlords fail to comply with any of the aforementioned, it may result in sanctions by the local board of health because of being termed as "conditions deemed to endanger or impair health and safety" (410.750). Resulting incompliance penalties start at $50 and can exceed $500 each day, depending the severity of the violations. Additionally, other expenses can amount if violations occur while the property is occupied, as tenants may file counterclaims regarding the violations. This is due to the fact that tenants may be candidates to receive substantial damages in the case where alleged violations were accurate and occurred after foreclosure sale.

To help prevent these scenarios, it is paramount that servicers take action in the period immediately following purchase of foreclosed properties. First and foremost, the property in question should be thoroughly inspected. Completion of this task will determine the home's condition at sale, whether violations exist and next steps for any necessary repairs. There are, of course, instances where occupants (tenants) could refuse to allow inspection of the premises. It is recommended in this case that the occupant sign a document confirming this refusal, as it can be used as evidence of the inspection attempt.