Creative Choices To Handle REO
Tampa, FL-While some in the business lived through the foreclosure insanity of the late eighties and early nineties, asset managers today are faced with challenges they've never encountered before, like dealing with city ordinances that differ drastically in municipalities all over the country.
Before, REO agents and property managers were more concerned about encountering crazy dogs on the property or perhaps tenants with guns, according to speakers at the MBA National Servicing Conference, but now people are having serious challenges with sheriffs and courts when it comes to the completion of the eviction and foreclosure.
REOs will be strong through 2012, the speakers stressed. Because of the huge amount of REO inventory out there, lenders are going to have to become more aggressive with the disposition strategies they pick. They must consider creative choices, including some like short sales, deed-in-lieu, auctions and leasing or rental agreements.
While some still use auctions to get rid of low-end properties, this form of disposition is popular for lenders and servicers nationwide to move homes, said Elsa Lewis, senior vice president of national sales and REO at the auction firm of Williams & Williams. " Prospective homebuyers who are in their twenties and savvy with technology turn to the Internet to look at foreclosed and REO properties and do research. They study locations and property condition and bid try to bid on these properties online. This cuts out all the red tape. The faster, younger generation moves quickly and wants it now."
It's harder than ever before to keep up with legislation, the speakers said. Even though President Barack Obama's foreclosure plan does not include a nationwide moratorium, the panelists stressed that plenty of states have moratorium legislation in place and more is expected to pass. Through these laws, the borrower can delay the foreclosure sale for 90 days in some states similar to what is being presented in Colorado, which does put some responsibility on the borrower. Forced mediation is also part of today's judicial process. Mandatory mediation laws have come out in New Jersey, Ohio and Connecticut, said Caren Jacobs Castle, a partner with Castle Meinhold & Stawiarski, LLC.
Instead of an automatic eviction, it behooves the industry to keep someone in the property, she said. Whether investors purchase a property and do month-to-month leasing or lenders form rental programs, many in the industry say its better to sell the house occupied rather than unoccupied. It takes away the immediate loss of the associated holding costs during the time it takes to sell the real estate-owned assets.
Chad Neel, president/COO, LPS Field Services Inc. and LPS Asset Management Solutions Inc., says it is crucial to have specialty services in place to manage the foreclosures and the REO liquidation process. His company communicates directly with cities on a variety of issues in order to know what the red flags are in each town.
"That way, you know the ramifications of each law. We can tell the city, these properties are ours," Mr. Neel said. "I think the industry would benefit a lot more with more city collaboration. We're trying to help them understand the industry. You didn't have to do that before. It's a cost for us as a servicer provider, but we don't charge a cost, because it's better service. It results in less loss severity and less code enforcement claims and penalties."
Working with some municipalities may prove to be much more challenging, and yhe conflict between these governing bodies make it extremely difficult for servicers to comply. Ideally, servicers and their outsource partners will proactively reach out to municipalities that are considering legislation before any legislation is passed, he said.
Direct your work to service providers based on their expertise, Mr. Neel advises. "We have a team of people who scour REO portfolios to study which disposition strategy is best for each candidate."