As the number of vacant homes continues to increase throughout the country, municipalities are becoming more conscientious about how banks and mortgage servicers maintain these empty properties.
Many municipalities have recently filed lawsuits against banks and servicers in order to make sure vacant homes are preserved properly. With asset management firms and field service companies not maintaining these unoccupied properties correctly, this has hurt not only neighboring home values but gated communities, too.
Derrick Logan, executive vice president for REO Allegiance, Bayonne, N.J., said instituting a focus inspection program is important in helping to stabilize housing markets, especially while properties are vacant.
“The preforeclosure process is when the property is at its most vulnerable state and least cared for by the former occupant,” Logan told Mortgage Servicing News in an interview. “Obviously, the bank who is responsible for the property cares while the former occupant definitely has far less concern prior to the foreclosure process.”
Logan said the longer asset management companies have to maintain vacant properties, there is a greater opportunity for the home to manifest into squatters, drug usage, vandalism and fires. All of these problems result in fines and liens that result in major capital loss for banks and servicers.
“It’s so important that if you’re not watching your collaterals, someone else is going to be watching it and this individual is probably someone you want to avoid,” Logan said.
The number of times a vacant property is inspected differentiates based on the problems at the site, Logan said. He recommends that an empty home gets inspected at least twice a month, but said some companies want their properties that are in high vandal areas inspected weekly.
According to Zoomchek Inc., a Brooklyn, N.Y.-based inspections company, these are hostile times for inspectors because former homeowners are pressuring them to review their property and there is also an increased need to service all of the due delinquent accounts. “As foreclosures rise, so does the risk in managing the risk,” Zoomchek Inc. said in a written statement. “Inspections have become more up and close and personal with an increase on interview door hanger type services from providers all attempting to one up each other.”
Calvin Johnson, owner of Calvin Johnson Home Inspection and Services, said foreclosed homes could turn into a nightmare of problems and costly repairs if they are not inspected properly.
“When homes go into foreclosure, owners have no incentive for continuing a regular regimen of maintenance,” Johnson said in a press release. “The homes may have been in decline long before that, as owners have less money to fix problems as they arise.”
During a home inspection, the Port St. Lucie, Fla.-based firm addresses a variety of structural elements from cracks in walls and foundations to evidence of termite infestations. Additional tasks examined during an inspection include the home’s electrical system, plumbing and floor integrity. Johnson added that roofing and attics will be explored and in rural areas, the inspection may include the septic system. Garages may also come under scrutiny, along with heating, cooling and ventilation systems.
Any problems with these areas could result in not only steep fines against banks and mortgage servicers, but a possible lawsuit, too, which costs servicers a lot of money to defend.
Logan said any type of lawn care deficiency is a “perfect invite for a code enforcement” official to come to a site and order a fine against the servicer as well as look for additional problems in the home.
“Inspections are designed to uncover problems that exist so that they can be corrected,” Logan said. “Once a property becomes a public nuisance, the municipality is going to go after it. Fines have been known to be so high that they were like downpayments on a home. They were meant to send banks and servicers a message.”
According to Logan, there’s no better way to eradicate issues than through an inspection program to know whether an owner has simply abandoned the property. He added that by knowing about any specific damages or problems early might allow a lien holder to exercise certain rights under existing homeowner insurance policies.
“Not inspecting or keeping an eye on vacant properties tells the community that there is a lack of respect for the neighborhood. Financial institutions are basically telling the community that we own this property, but since we are not your neighbor, we don’t care what the values of your community are as a whole,” Logan said.
“This is not the kind of message that our financial institutions want to convey to neighborhoods that they own foreclosures in because foreclosures have impacted the entire makeup of our country,” Logan continued. “We all need to support each for neighborhood stabilization in order to help the housing market recover.”
Logan added that in order to remain in compliance with municipal regulations, it is important for investors to establish a good relationship with code enforcement officials to deal with property problems before they escalate into fines and liens.
“Any type of open communication between an investor and code enforcement official demonstrates to neighbors that they care about the health and safety of the vicinity,” Logan said. “When that’s done well, it’s an integral part of the community’s stabilization strategy.”
