REQUIRED READING: The old adage ‘One man's trash is another man's treasure’ rings particularly true for professionals operating in eviction circles. Like most default-servicing events, personal-property evictions are guided by a wide variety of rules and regulations. Where gaps in the rules exist, the decision of how to treat items that remain in properties post-foreclosure is often left to the discretion of servicers and their business
partners in the field.
Although eviction specialists indicate that wrongful eviction suits relating to the removal of personal property are not very common, the threat of liability – which is perceived to be greater now than in the past, given recent foreclosure developments – combined with at least one government agency's having altered its property conveyance guidelines in the past year, has prompted servicers to be more diligent when reviewing documentation related to evictions.
One of the biggest risks for servicers occurs when property-preservation contractors or brokers mistake personal property for trash. Discerning true debris from a past occupant's possessions is not always cut and dry. What appear on the surface to be meaningless papers may prove valuable, if not at a garage sale or on the auction floor, then sentimentally. Moreover, even in situations where all parties involved agree that items qualify as garbage, servicers are left in a vulnerable position if their vendors' documentation efforts are not up to par. There's a reason why field servicers routinely joke about the astounding number of Picassos that are found in foreclosed homes.
"As with most statutes, it's not necessarily very clear in a lot of areas," says Marty Stone, a managing partner with Georgia-based McCalla Raymer. "Our firm takes a conservative approach. If there is anything in the property that can be remotely construed as personal property instead of trash, we're going to recommend to our client that they can afford and actually file a dispossessory action."
Even in cases where servicers have court approval of a personal-property eviction, it is important to give borrowers plenty of opportunities to access items, field servicers note.
"Even though the courts say the eviction has taken place and the borrowers had ample time [to remove the property], we can still be held liable for removing it and not having it available to the borrower," says Greg Tolander, chief operating officer of Austin, Texas-based Field Asset Services (FAS).
Best practices surrounding personal-property evictions can become muddied when taking on the hue of agency guidelines. Guidance issued last May by the U.S. Department of Housing and Urban Development (HUD), for example, has divided the industry in terms of how to treat items left in homes post-sale but pre-conveyance. Mortgagee Letter 2010-18, which took effect in July 2010, tightened the definition of conveyable condition, requiring HUD properties to be broom-swept and free of interior debris prior to conveyance.
The letter instructs servicers to comply with local statutes governing property evictions. The problem, field servicers say, is that such rules vary tremendously from one jurisdiction to the next, if they exist at all. Some states, known as "curbside states," require property to be moved to the nearest property line. Other states require property to be moved to and stored in a bonded warehouse or storage facility. Several states offer no legal guidance whatsoever, leaving the decision of what to do with personal property entirely to servicers.
The confusion over Mortgagee Letter 2010-18 was on full display at the National Property Preservation Conference 2010, a gathering of field-service professionals held in Washington, D.C., last November. During an interactive question-and-answer session, attendees were asked about their handling of personal-property removal prior to conveyance.
The breakdown of votes was telling, with 31% of participants saying they treat the items as debris – just below the 32% who answered that they move personals to storage. Thirteen percent said they perform the evictions but do not claim the cost to HUD, while one-quarter of respondents were undecided.
In areas where no personal-property eviction laws exist, servicers' strategies typically fall into one of three categories, says Tracy Hager, vice president of operations at Mortgage Contracting Services (MCS). Besides treating the personal property as debris or storing it, some servicers instruct their property-preservation companies to post a sign on the property's exterior that advises the previous mortgagor of his or her right to remove the contents within a specified period of time – typically, 30 days.  Â
The potential risks to servicers are clear. Shops that opt for a conservative tack by moving and storing the property have no guarantee that HUD will reimburse them for the associated costs. (HUD representatives at the National P&P Conference said that automatic reimbursement for storage costs would be taken into consideration.) The other extreme – to treat all property as debris and trash it – poses obvious headline risk.
In turn, servicers are simply being more cautious when they review property-preservation companies' documentation and eviction photos, Hager says, explaining that most of MCS' clients provide a matrix detailing how they want to address personal property, based on a variety of scenarios. The decision to trash or preserve is informed by several factors, including the estimated value of the personal property and the location of the real estate.
"Most servicers are having to expend additional time to review photos and make case-by-case decisions based on the possessions that are remaining in the property," says Hager. "It's not clear-cut any longer, and it takes a little more human intervention."
Several field servicers have implemented technologies that help accelerate the review process by providing loan servicers and asset managers with real-time, date-stamped photographs. In the case of FAS, a vendor in the field is responsible for
determining whether items of a personal nature are still in the house and, if so, what the items are worth. If the vendor is uncertain about the estimated value of an item, it can transfer the photo back to the company's headquarters and request a judgment.
FAS sets its garage-sale-value threshold at $300, Tolander says, meaning items estimated to be worth more than that amount are classified as potential personal property. "We'll make the judgment call at $300," he says, adding that estimates have been overruled by servicers or brokers hired by the servicers.
"Rather than force a point of he-said/she-said, we take an approach of, "It's gray; we're going to do the work you're directing us to do,' and if there's a consequence – a claim filed – we're going to safeguard our client's interest," he says.
Although most eviction specialists note that the trash-versus-property discussion -and, more specifically, the practice of estimating an item's worth – is riddled with subjectivity, establishing value thresholds is commonplace. Servicers, by making that determination themselves, take on full ownership of the liability, explains Derrick A. Logan, executive director of Bayonne, N.J.-based REO Allegiance Inc.
"We work with our client to establish a policy while laying all the cards on the table so they can make a sound decision with built-in variables as a cushion," he says.
Regardless of the exact statutes governing property evictions, attorneys and field servicers agree that it is hard to be too cautious in today's environment.
"When you're balancing the costs of a dispossessory action – or even the time that it's going to take – versus the implications of a wrongful-eviction suit, it just makes better sense to do the dispossessory action," says McCalla Raymer's Stone.
Logan similarly explains that a more expensive personal-property eviction in the near term could eliminate the possibilities of even more costly litigation further down the line.
"If you are following protocol, then it will probably cost you more to do it right," he says. "On the flip side, in the land of the lawsuit, it makes more sense – and in the long run, will be financially beneficial – to follow local statutes to the letter of the law and document everything."
