New State and Local Laws Affect REO Properties

Property preservation company Mortgage Contracting Services is currently tracking over 500 enacted code compliance related ordinances and disaster notifications.

These ordinances consist of city and state ordinances, including vacant property registration as well as FEMA disaster notifications.

One state law to note is the Colorado "fast track" foreclosure bill, which expedites the foreclosure process on vacant, abandoned properties.

Property preservation companies and field service vendors are busy trying to keep up with local and state vacant property ordinances.

"This will have a positive impact on communities as vacant properties within the State of Colorado, in theory, will remain in foreclosure for less time," said Lorne DuFour, assistant vice president, code compliance at MCS. "As a result, properties should become re-occupied sooner."

There are several proposed, statewide vacant property registration ordinances, which he says will lessen the burden on the default servicing industry to manage the "cumbersome process" of registering vacant properties at the city level.

The Chicago Watchman Ordinance will require owners of vacant properties to post a watchman on the premises between the hours of 4:00 p.m. and 8:00 a.m., unless the building has been properly secured.

Should the foreclosed property be located within 2,000 feet of a school, a watchman is required to be on the premises 24 hours, whenever schoolchildren are in attendance, regardless of how the property is secured.

"The City of Chicago has been in discussion with members of the mortgage servicing industry taking into consideration the impact of this requirement," DuFour told National Mortgage News. "The proposed ordinance is scheduled to be presented for consideration at the next Building Committee meeting and subsequent passage at the July 28th city council meeting."

Caroline Reaves, CEO of MCS, said vacant property registration ordinances have been a positive step for the industry in terms of ensuring compliance.

"We were all very afraid when it came out, but it's turned out to be a good thing. The cities do pick up the phone and ask us to take care of specific properties," Reaves said.

HUD recently released new regulations that require property management companies to be responsible for interior debris in foreclosures and REO properties.

"That's a very large change for HUD. They have also changed a lot of their wording deferring to local ordinances instead of telling us what to do in every state and every city. They understand there may be work that has to be done because it's required by a local ordinance. For example, boarding all windows even if the windows aren't broken," she said.

HUD also raised their cap for preservation to $2,500 per property because more preservation work is being required now. Prior to this, the price varied by state and averaged $1,800.

"The smaller servicers really depend on us, the vendors. A lot of the large servicers have a lot more resources to deal with this. Even the small ones have people who are dedicated to doing this. Everyone understands the need to have relationships. More servicers are coming to the local ordinance meetings."

MCS speaks with attorneys on a regular basis because of contradictions and discrepancies in state and local laws. Conferences and industry meetings are vital to continuing these discussions, says Reaves.

"All of us working in silos doesn't work very well. When we get together it's always helpful."

After enhancing the MCS website, city officials and field service providers can now reach out via the Internet and type in information regarding particular properties such as an address and specify, for example, if the lawn needs to be mowed.

Reaves said there are increased expenses related to these compliance changes when they are done incorrectly. "We do something wrong, there is a penalty from HUD or Fannie or Freddie. That's why we spend so much on compliance," she said.

"We need photos to support all of our work. The number of photos is overwhelming to keep and ensure we are documenting our efforts. On top of that, there is training of our vendors every day on new processes with the goal of protecting our clients, our community, and MCS, obviously."