REQUIRED READING: The federal government and state and local legislatures across the country have struggled to find ways to lessen the impact of the housing crisis. In an attempt to reduce the number of foreclosed and vacant homes, legislators have introduced various initiatives targeting the foreclosure process itself. These efforts range from the federal government's moratorium on foreclosures to various states' proposals to either lengthen or shorten time requirements for taking properties through the foreclosure process.
The state of Colorado, for example, recently introduced a bill that would shorten the time it takes for a lender to take a property through the foreclosure process. Similarly, Rep. Tom Grady, of Naples, Fla., has filed legislation that he says would substantially truncate the state's foreclosure process. The Georgia General Assembly, on the other hand, with one of the fastest foreclosure processes in the country, is considering legislation to slow it down.
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As diverse as these proposals are, one aspect they share is good intentions. Both Colorado and Georgia, as well as other states considering similar measures, share a common desire to reduce the number of vacant homes and prevent the devastating impact that vacant properties have on neighborhoods and communities.
Despite the best intentions, however, the key to effective legislation is what ultimately happens in the practical application of these measures. In many cases, an idea that looks good on paper can actually create a worse situation than the one it is designed to improve. For this reason, it is useful to consider the potential impact of various foreclosure proposals through the lens of a mortgage field servicer.
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Mortgage field servicers are the eyes and ears of the mortgage servicing industry. They are the companies hired to inspect and maintain millions of vacant defaulted and foreclosed homes across the country. It is field service companies that arguably offer the best "on the ground" perspective to evaluate the real impact of foreclosure-related legislation on properties, neighborhoods and communities.Â
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When a homeowner defaults on a loan, the field servicer begins monthly inspections of the property on behalf of its mortgage servicing client to verify the occupancy status of the property. While the home is in default, the servicer attempts to reach the borrower to discuss a workout arrangement.
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A common public misperception is that mortgage companies desire to remove defaulted borrowers from their homes. In fact, the opposite is true. Mortgage companies, which exist to promote homeownership, know that an occupied property maintains its value better, is safer and is better protected than a vacant property. An occupied property is less of a nuisance to neighbors and communities than a vacant property, because it is less likely to attract vandals and other criminal activity.Â
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This is why the industry supports legislation that protects borrowers and helps them to remain in their homes.
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But what happens when a property is vacant and there is no homeowner to protect? Our field service experience shows that more than 20% of the defaulted properties we inspect will become vacant – in other words, abandoned by the homeowners. These are homeowners who have made a conscious choice, for whatever reason, to leave their home, often without ever contacting their mortgage company.Â
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When homes are initially abandoned, field servicers will verify that most are in livable condition. The properties may not be pristine, but they are habitable, especially by a first-time home buyer willing to invest a bit of "sweat equity" to have an opportunity to create a comfortable home to raise a family.
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In some cases, a homeowner may damage a property before abandoning it, but these damages usually are not serious enough to make the property inhabitable; the most expensive and irreversible damage to properties occurs over time.Â
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The servicing industry spends billions of dollars each year inspecting and maintaining vacant properties. As an industry standard, vacant properties are inspected at least on a monthly basis to check for leaks and other structural issues and to make sure they are secure. In cold climates, pipes are winterized. In all properties, broken windows and doors are secured, hazardous chemicals are removed and infestations are exterminated. Yard debris is removed, and lawns receive regular maintenance.
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While field servicing certainly slows the deterioration of vacant properties, even these properties will decline over time, no matter how much maintenance and attention they receive. The irony, from a mortgage servicing perspective, is that the longer a property sits vacant, the more money is invested, and the less valuable the asset becomes.
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Weather extremes also damage vacant properties, which are not heated and cooled the way occupied properties are. Vacant properties are more susceptible to foundation cracking, leaks, mold and other temperature-related problems that are expensive to repair.Â
Community impact
Vacant properties are also expensive and burdensome for municipalities in countless ways. They impact the quality of life for neighbors, who often have to endure drug activity, vandalism and nuisances that vacant properties attract. They are a drain on safety forces, as vacant properties result in more calls for police and fire protection. As vacant property values decline, so do the property values of other homes in the neighborhood. With lower property values come lower tax valuations and major hits on already strapped city budgets.
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A Chicago study conducted in 2005 concluded that each vacant property cost municipalities upwards of $34,000 per year for additional police and fire protection, court action, inspections, tax losses, unpaid utilities and potential demolition. That number would undoubtedly be higher if the study were repeated today, as vacant properties now sit even longer and cause even greater harm to neighborhoods and communities.
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For years, the mortgage servicing industry has worked with communities to help address issues related to vacant and abandoned properties. Outreach to code-enforcement officials, stickers on vacant properties with 24-hour contact information, "good neighbor" door hangers to invite neighbors to report problems, and other efforts have been important to allow servicers to respond more quickly when issues arise.
In the past year, an initiative between the Mortgage Bankers Association and the Mortgage Electronic Registration System (MERS) has allowed hundreds of cities to tap into the MERS system free of charge to obtain contact information for more than 65 million properties registered on the system.
Fast-track to re-occupancy
The strongest collaboration among mortgage servicers, their property preservation field servicers and cities cannot replace the value of having an occupant in a home. When a homeowner is present, every effort should be made to help that homeowner remain in his or her home, and legislation to support that is good for everyone.
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Unfortunately, when that legislation also prevents a vacant property from moving through the foreclosure process so that it can be reoccupied more quickly, it can actually create more harm, cost and burden for neighborhoods and communities. The reality is that no single solution can be a "magic bullet" for all situations. The housing and mortgage crisis in the U.S. is a complicated mosaic. We need laws that recognize different situations and allow flexibility to accommodate those distinctions.
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Across the country, foreclosure processes vary significantly, from 30 days in Texas to more than 18 months in Ohio. As mentioned previously, Colorado and Florida are considering legislation to speed up the process, while Georgia is working to slow it down.
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Once a property is certified as vacant, putting it on a fast track to foreclosure benefits everyone. Communities win because the property can return more quickly to contributing to the tax base, and poses less risk and burden on city services and courts.Â
Neighborhoods win because property values are maintained, and the property is more likely to attract a strong buyer who will be a good neighbor and take care of the property. Servicers win because the property maintains collateral value and does not require a lengthy and expensive property preservation process.
Robert Klein is founder and CEO of Safeguard Properties, the largest privately held mortgage field services company in the U.S. He can be reached at (800) 852-8306.
