Chicago ordinance brings property preservation to the forefront
The decision by the Chicago City Council requiring banks, mortgage servicers and institutional investors to maintain vacant properties before the homes complete the foreclosure process is no surprise.
Frustrated by an expanding number of such properties — 18,320 by some expert estimates, with two-thirds in the process of foreclosure for more than a year — city officials there are searching for some way to keep them intact and not feed further problems such as vandalism, deterioration and unhealthy conditions. Revenue generation is another motivation, but often secondary.
It will be left to the courts to determine whether the Chicago ordinance can be implemented legally and ultimately adopted by municipalities nationwide. But for now, these properties remain vacant and subject to all the normal effects of nature and natural decline, which is not good for anyone.
The need for greater property preservation efforts is fueled by a substantial vacancy rate of 11.4%, according to the Census Bureau in a report earlier this year. In many cases, the owners of these properties cannot be found.
Cognizant of this, many servicers, especially smaller, specialty operations, are contacting those of us in the property preservation and maintenance sector seeking a proactive approach to this growing problem of vacant property registration and maintenance.
The ever-changing expectations of servicers by city code enforcers has prompted increasingly concerned calls for professional assistance in meeting code compliance and putting in place regular surveillance, maintenance programs and timely intervention when urgent needs arise.
As local governments grapple with more budget restraints, they are putting regulatory pressure on lenders, servicers, investors and their outsourcing providers. Add in falling equity and more walkaways than ever before and it is no wonder cities and towns are more aggressive in assessing fines, attaching liens, pursuing civil litigation and even seizing properties.
What makes this more burdensome is that local ordinances often can be ambiguous; written differently from town to town, and ever-subject to new interpretations. This translates into a need for close watching to avoid code violations and expensive fines.
Even before local governments began ramping up the pressure to assign responsibility for vacant property control, we had seen banks become more aggressive in protecting these assets. They are aware of individual code compliance issues and whom to call when a need or problem surfaces.
Guidance on securing properties
The banks ask for guidance on how to secure properties and avoid code violations — for anything from covering pools and securing gate sensors to shuttering doors and windows. In some places, there are requirements for burglar alarm installations, porch lights and landscaping.
This trend is likely to continue and even advance as lawmakers look for someone in authority to take more responsibility, which translates to personal service on our end.
One recent situation required rescuing a pet dog abandoned in the backyard; another required servicing a property in a rural area of Alaska. In the first case, the dog was safely placed through the American Society for the Prevention of Cruelty to Animals and in the other, the rural Alaskan property was serviced by charter flight. The goal is to accept any challenge and provide personal service. Every property and situation has its own set of circumstances that must be uniquely addressed. We see the industry moving away from standardized packaged services that provide simple general maintenance.
Freddie Mac has acknowledged the importance of this focus, earlier this year introducing new reimbursable expenses for property inspections and invoice processing, and increasing the expense limits for certain existing property preservation expenses.
Adding up the costs of foreclosures puts the numbers well into the tens of thousands of dollars when such things as municipal interventions, back payments for services and even demolition are factored in.
The need for unique service options will continue as the housing contraction seeks its final boundaries, putting mounting pressure on banks, which have only so much they can dedicate to property preservation. The resulting pressure will lead them to appreciate both efficiency and the ability to personalize outsourcing services.
Suzanne Ball is president of America’s InfoMart Inc., an Allen, Texas, based property preservation firm.