REQUIRED READING: It is no surprise that times continue to be tough in the housing market, and underwater borrowers increasingly face foreclosures and short sales. Although lenders, servicers and real estate agents can discuss the proper steps of a foreclosure – or alternatives – for borrowers, it is uncommon to hear about the nuances of dealing with an occupied property and the process of establishing rapport with occupants.
Many industry professionals incorrectly refer to the task of relocating the occupant as eviction, and it is one of the most sensitive areas for real estate agents because of the importance of its execution in a timely manner. However, understanding the struggles that many borrowers are facing is essential, and what is improperly called eviction is actually a process of relocation assistance.
When the foreclosure crisis first hit several years ago, occupants were typically not aware of their options and avoided communication out of fear of the unknown. Today, occupants tend to be better informed of the process, next steps and, many times, are waiting to be contacted. At the end of the process, most borrowers are usually quite relieved to finish what is typically one of the most difficult times of their lives, especially since servicers now offer very generous relocation incentives to occupants and are flexible in negotiating move-out dates.
One of the most important steps to establishing rapport with the borrower is to effectively communicate to occupants that the broker and servicer's purpose is to make the relocation process an easier transition. And although the steps in the process have remained consistent during the last five years, the dynamics of the interaction have changed significantly. The number of relocation cases has greatly increased, laws for protecting the rights of tenants have been enacted, and servicers are aware of the importance of a successful relocation process and frequently include it on the score card of their brokers.
Servicers typically require that occupancy be determined within 48 hours of the assignment of an asset to a broker. Once a borrower has gone into default and the foreclosure process has begun, real estate agents are generally the first step in the chain of communication with the occupant of the home.
Real estate agents work to convey legal options to borrowers and help them better understand their possible next steps. If this process is not done correctly, it will result in unnecessary mental anguish for the occupant, as well as potential legal liability for the investor and servicer. Legal liabilities can also result when brokers do not have access to the final foreclosure documents of properties that are still in loan renegotiation.
If a broker does not treat the occupant with respect during these initial stages of contact, they may be creating legal and ethical problems for themselves if it turns out that the foreclosure was done in error. Basic considerations, such as conversations with neighbors while trying to determine occupancy status of the home, can turn into a slander case if the broker makes a blunder.
There are a few factors to be aware of in today's market, such as the ‘occupy’ groups who take over homes, sometimes at the invitation of the prior homeowner. It is not unheard of for real estate agents or servicers to have dealt with well-organized groups, which are able to extend their stay through educated use of the legal system.
In some cases, occupy groups bring in furniture and electronics to appear as if they are established occupants. Unfortunately, there are the instances of occupants whose primary focus is to vandalize the property to spite the servicer. Properties that have undergone extensive damage can be difficult to resell.
It is crucial to work closely with both the client and the legal authorities when squatters take over a property. The client needs to be well informed regarding the roots of the group to have a feel for how difficult it will be to remove them.
In addition, law enforcement personnel need support and documentation so they can carry out their duty to remove the trespassers. In some cases, services or real estate agents may be requested in some cases by the police to post a ‘No Trespassing’ sign so they substantiate issuing a ticket or making an arrest during their patrols. Thorough communication with the asset manager is very important in these instances because some clients have specific concerns with additional signage.
Demographics are another component to be taken into consideration when dealing with occupants, especially when the percentage of those affected by relocation assistance is not evenly distributed. According to the National Association of Hispanic Real Estate Professionals, Hispanics have been disproportionately affected compared to other demographics, both as owners and as tenants. This adds another level of complication to the broker; they must be sensitive to occupants who may be living in the dwelling with unclear immigration status.Â
In some cases, undocumented occupants avoid making contact with the broker due to fear of being reported to the authorities, while in other cases, it may be impossible to give relocation assistance to someone who does not have a social security number to go on to the requisite W-9. The best way to address these issues is to clearly communicate intentions to the neighbors and to the occupant so that they do not sense there is a hidden agenda with this initial contact. Neighbors can be the best advocates for the relocation process if a good rapport is established. And, of course, having a good command of the occupant's native language and knowing the culture is an important part of clear communication in any neighborhood.
There is also another issue to consider: Because pets are one of the largest casualties of foreclosure, it is also important to be aware of any ancillary issues the occupant has so they can be supported in a dignified manner. Unfortunately, many animals that shared the home with the mortgagor are not welcome elsewhere, or their owners have to give them up due to lack of space in their new surroundings.
There are many no-kill shelters that are able to help these animals find a new family instead of leaving them behind at the foreclosed home or abandoning them along the street. Nonprofits such as No Paws Left Behind are terrific resources to find local no-kill shelter locations that help support the occupant of the property through this trying time. A knowledgeable broker should be willing to assist the occupant with a list of pet relocation alternatives.
When handling relocation assistance cases, be sure to choose the best person in the agency or the servicer firm to make contact and begin negotiations. It is important that the individual be carefully selected and has a thorough, high-level perspective of the process, understands the importance of providing quality customer service and not solely focus on vacating the house. It is not a bad idea to have the president or broker of the real estate company personally negotiate with all clients' occupants to ensure a consistent message is delivered, and this tactic is a great future client-development opportunity for the brokerage.
Also, always keep in mind that occupants are human beings, and that the majority of them have faced several hardships that led them to their current position. It is helpful to have an individual on your team who can connect with the occupant and have compassion to navigate their difficult situation.
Where applicable, it is also important to have native language speakers on the relocation assistance team who can work with the nuances of the specific demographics of a market. While a servicer can offer to negotiate relocation assistance via phone with a given occupant, it is not the servicer's obligation to do the job of the broker. Each broker should be intimately familiar with the homeowners of their service area and thus, the various languages. It is a poor reflection on the broker if he or she did not have the resources in-house to take care of his or her clients.
As more and more investors lose their properties to foreclosure, the tenants are increasingly affected. Tenants are often caught by surprise and need to receive a clear explanation of their rights so they can make the decision that is best for them.Â
It is crucial to train the property preservation team on how to respond to requests for information that they may receive so they do not offer personal advice to the occupants. Often, tenants ask team members where the rent should be paid or how they can get their security deposit back, and incorrect advice given in these situations creates liability for the broker and can significantly complicate the relocation transition.
Once the tenant makes the decision to either continue renting or to leave the property, it is very important to monitor the transition from the broker and the property management company in the event the tenant decides to stay. In many cases, the pre-existing property management company immediately cancels utilities to the property, and this can put the broker in an awkward situation when the tenant requests help.
Although it may seem excessive or unnecessary to some, consider having the utilities turned back on at your own expense. Be aware that the servicer will likely not reimburse the expense since the property management company is responsible for utilities from that point forward. However, if the tenants continue to go without power or water, there could potentially be negative connotations and publicity for the client, which could be far more damaging than spending a couple of dollars to turn utilities back on, and, above all, it is the right thing to do.
If the relocation assistance process is handled properly and cautiously, the real estate agent and servicer can build an established rapport with the occupant. When dealing with such a sensitive issue, make certain the appropriate steps are taken to ensure the well-being of the occupant and servicer.
If the process is handled with care, the occupant could possibly revisit the real estate agent in the future and become a new client when he or she is financially established. The process of coordinating relocation assistance is challenging at best, but doing it well is important in order to help the occupant of the property take the next step forward with the support of the relocation assistance funds – a significant part of a successful transition.
Eric Lichtenheld is president of Integra Group Real Estate LLC, based in Tucson, Ariz. He is also president-elect of the Arizona chapter of the National Association of Hispanic Real Estate Professionals. He can be reached at (520) 829-4039.