Abandoned Or Unkempt? Squatter Or Renter?

style=’font-size: large’>A presidential call to halt foreclosures – combined with major financial institutions' own internal moratoria – may have helped to temporarily slow the inflow of new filings, but now that many such initiatives have expired, foreclosure rates appear to be heading in only one direction: up. Foreclosure filings increased 17% from February to March, according to RealtyTrac – a jump the company's CEO, James J. Saccacio, said was based mostly on new foreclosure actions. This ‘suggests that many lenders and servicers were holding off on executing foreclosures due to industry moratoria and legislative delays,’ Saccacio added. As if servicers did not already have enough on their plates, rebounding foreclosure statistics seem intent on complicating matters. Rising foreclosure rates translate to not only a need for more borrower communication and better vendor coordination, but also for keen monitoring of state and municipal regulations that run the gamut, from pre- to post-foreclosure, such as registering vacant properties and evicting tenants. Last year, legislative changes arrived at a breakneck pace, and 2009 appears to be more of the same, Caren Jacobs Castle, a partner with Castle, Meinhold & Stawiarski, said during a panel session at the Mortgage Bankers Association's Servicing Conference & Expo. Going forward, the rapid introduction of state-level legislation will demand that servicers dedicate resources to staying on top of new bills and, importantly, anticipate the unintended consequences of well-meaning proposals. Vacant-property registration – an idea believed to have originated in Chula Vista, Calif., and copied by about 600 cities across the country, according to panelists' estimates – is the epitome of a well-intentioned but shortsighted program. On paper, the concept has merit. Vacant properties are vulnerable to vandalism and crime. They reduce the value of neighboring homes. And as house values drop, so does a community's tax base, which ultimately decides how municipalities plan their budgets. A community's interest in knowing how many properties are vacant is clearly justified. For servicers, property registrations present administrative headaches and legal vulnerability. Maintaining compliance with state-level regulations is already difficult for any shop managing a portfolio that crosses state lines. ‘But now, take it down to city and municipality level in all of those states, and the differences between each one of those ordinances can be significant,’ said Jacobs Castle. ‘The burden that's placed on the servicer is quite significant.’ Many obligations being put upon servicers may border unconstitutional territory, and they are shrouded in ambiguity, added Barry F. Laws III, a partner with Martin, Leigh, Laws & Fritzlen PC. Determining if a property is, in fact, vacant and abandoned poses a serious challenge. The attorneys on the panel recommended getting court orders before entering properties so as to avoid being sued for wrongful taking of possession, regardless of whether the home is in a judicial or non-judicial foreclosure state. Live videotaping (with no cuts) of the property inspection process is also advised, because it provides a record of what belongings were in the property. ‘Defining what is abandoned is really not as simple as we all think it is,’ Jacobs Castle said. If a front door has a lockbox attached, the property should not be treated as abandoned, ‘because generally, a real estate agent is involved somewhere on the property if there's a lockbox.’ In small municipalities, an opportunity may exist for servicers to recruit police officers or local housing department officers to accompany an inspector. Fisher and Shapiro LLC's Lee Scott Perres said this approach is an excellent way to ensure independent proof. The strategy does not translate well to large cities, whose resources are already strained. ‘There's a political need not to have broken windowsâ�¦but the responsibility and cost are being shifted from the borrower to the lender, because it's taking so long to complete foreclosures,’ Jacobs Castle said. The post-foreclosure eviction process has also become far more difficult to navigate as compared to years past. Perres noted the case of Cook County, Ill., Sheriff Tom Dart, who made headlines last fall when he unilaterally decided to stop evicting tenants on the grounds that they were being wrongfully removed when their landlords fell into foreclosure. There have been incidences where an unscrupulous owner, knowing a foreclosure sale is looming, finds a tenant, collects first and last months' rent, and then bails. Without an actual inspection, a servicer might mistake a renter for a squatter – a scenario that opens servicers up to severe liabil


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