PERSON OF THE WEEK: For a long time, municipal codes governing abandoned and vacant properties have been considered a thorn in servicers' sides. However, many property preservation and field service companies have answered the call in recent years by helping servicers develop processes meant to ensure compliance.
The space has a new entrant in the form of Code Violation Services. MortgageOrb caught up with CVS' chief operating officer, Kim Hartmann, in this edition of Person of the Week.
Q: The industry has made major strides in reaching out to municipalities on the topic of vacant properties, collaborating on the MERS property registry and holding summits for code enforcement officials. Are there still many disparities among municipalities and officials in terms of understanding how the servicing business operates?
Kim Hartmann: Yes, with the continued growth of code enforcement departments, there will always be opportunities to educate municipalities on the role and responsibilities of default servicers. Municipalities will continue to face the staffing and financial challenges of managing vacant properties and neighborhood blight in their local communities.
A company like Code Violation Services, with a proactive solution to disclosing, negotiating and resolving these issues, will be instrumental in building relationships and goodwill between servicers and municipalities.
For example, a large municipality in the California bay area charged CVS clients $200 for every code violation report. After several months, it saw the benefit of proactive clients using the CVS disclosure report to address their code violation issues and have stopped charging CVS clients altogether. That's a perfect example of how working together and educating the municipality creates a win-win situation.
Q: Why is it important for servicers and their business partners to cultivate close relationships with code officials?
Hartmann: Working together builds goodwill for both parties. I can think of several conversations with municipalities where their willingness to negotiate and resolve issues for proactive servicers were much more positive than those that choose not to work with local officials.Â
It simply boils down to both parties wanting the same end results: eliminating neighborhood blight, limiting negative issues with vacant properties, faster resolution of violations and, ultimately, moving home buyers back into properties.
Q: How sophisticated are servicers' internal processes for staying on top of code compliance?
Hartmann: Very few servicers manage code compliance internally. Many servicers still take a reactive, versus proactive, approach. That, oftentimes, translates into a wait-and-see position, which ultimately leads to increased loss severity and lower disposition timelines.
Today's model of code compliance usually means the responsibility falls on the shoulders of the servicer's [real estate owned (REO)] agents at the time of REO referral and/or their respective field services organization. In either case, it's a reactive approach, versus a proactive approach.
Q: How common is it for vacant-property registration notices to contain mistakes or to be filed in a less than timely manner?
Hartmann: We find this to be the case quite often. One of the most frequent violations we find is the property is either not registered or has been registered incorrectly. If the property is registered incorrectly, the violation notices are not escalated in a timely manner and, oftentimes, not at all. Daily noncompliance fines continue to accumulate, and asset loss severity increases.
We found notices to a particular servicer were misdirected by their mail room, leaving the violations to go unanswered and un-remediated, which led to mounting daily fines and penalties. With the decline in property values, it is critical to preserve the integrity of the process to prevent further losses.
One of our core services is a product called a Code Violation Report (CVR) ,which outlines current unrecorded violations and the action items necessary to clear them.Â This report is most valuable and effective if ordered at time of first vacancy, prior to REO referral.
More and more cities are requiring an inspection prior to vacant-property registration. The CVR identifies in detail the initial code and registration violations to be addressed by inspections and, ultimately, the details of the field service work required to resolve and avoid liens, fines and penalties.
Q: In addition to code compliance services, CVS provides services relating homeowners' associations (HOAs). How much of a headache can HOAs be for servicers, and what kind of disconnects do you believe exist between the servicing industry and HOAs?
Hartmann: HOA violations, in fact, are a greater pain point for servicers due to several factors.
Oftentimes, it is extremely difficult to locate the actual HOA(s) associated with the respective asset. According to the Community Associations Institute, there are 300,000 community associations.
Obtaining accurate HOA invoices, outstanding fees, HOA violations and tax ID numbers for payments; negotiating HOA liens or fines; or obtaining HOA documentation for buyers and title companies is an extremely time-consuming and tedious process.
Additionally, clients face potential collateral loss issues with HOA super-lien states, where HOAs sell liens to investors, investors foreclose, and before proper notice takes place and is received by the client, an asset can be lost.