Monday, September 30, 2013

Vacant Property Registration

Vacant Property Registration
The Need for Statewide Guidelines

By Robert Klein
Cities across America are now using vacant property registration laws as a tool to catalogue properties in their communities and locate the responsible party for a home.  In 2008, I prompted the creation of the vacant property registration committee for the Mortgage Bankers Association where the concept for this type of ordinance was fully developed. I led the committee in bringing together industry representatives to discuss the impact of these rules on the property preservation world, and recommend more workable alternatives for both cities and servicers.  Over the last five years the property preservation industry has watched as these laws have evolved for the better and for the worse. 

For the better we have seen local governments taking steps to craft smarter laws and work with servicers to more easily achieve compliance.  For the worse we have seen cities use these laws as a tool to pad struggling municipal budgets.  From big cities to small towns we see fees for each vacant property from $10 to $500, with penalties reaching up to $1,000 a day or more for failure to comply with ordinance requirements. 

While there is no doubt that this is troubling, it is not the biggest challenge we face when it comes to registration guidelines.  For servicers the biggest obstacle in complying with these ordinances from city to city is the lack of uniformity.   With an estimated 35,000 municipalities in America, today we are aware of about 1,500 different municipal ordinances.  Those numbers tell us there is potential for thousands more.  A tool that would remedy this problem would be for each state to establish a statewide vacant property registration law.  It would permit each state to consider their local needs when crafting the legislation and give them a better tool to fight blight on a large scale.  This would also allow for servicers to follow 50 different sets of guidelines rather than 1,500 and ultimately support greater compliance. 

Local governments and municipalities have a lot on their plate as they struggle to make ends meet and I believe the statewide law of this nature could alleviate some of that stress.  Not to say that our states are not feeling the same pressure, but I know that this implementation would make our efforts to fight blight more effective and help our struggling communities. 



Monday, September 16, 2013

Fast-Tracking Foreclosures: Legislators Join the Conversation

Fast-Tracking Foreclosures:  Legislators Join the Conversation

By  Robert Klein

There are many theories on what needs to be done at local levels when it comes to jump starting statewide economies and reviving housing markets.  In states that utilize a judicial foreclosure process legislatures are increasingly turning to fast-tracking vacant and abandoned properties as a solution. Although this concept is not new to our industry, we now find that local governments are beginning to realize the devastating long term effects that a lengthy foreclosure timeline on vacant and abandoned properties can have on communities.  This leads me to believe that those of us with boots on the ground experience are doing a better job of communicating this problem with audiences outside of our universe, namely legislative bodies that have the ability to affect this type of change. 

Governor Pat Quinn of Illinois signed a fast-tracking bill into law that was debated and negotiated for over two years in the state's general assembly.  The law decreased the Illinois foreclosure timeline from anywhere up to 600 days to just 3 months.  The bill even went so far as to indemnify servicers from trespassing charges when entering homes for preservation purposes.  

The state of New York followed suit this summer when they approved a similar bill hoping to free up foreclosure dockets that are more than three years behind.  Effective this July, Nevada put into place an expedited process for the foreclosure of abandoned properties. Connecticut crafted legislation that expedited the foreclosure process and provided support for homeowners through the mediation process.

Ohio has introduced a bill in the House of Representatives that would fast-track abandoned properties and proposes extinguishing homeowner's redemption rights.  The bill also establishes a protocol for properties to be donated to local land banks if the circumstances permit. 

These are just a few examples of legislative victories.  While no two laws are the same state to state, the goal remains the same: shorten the time period the properties stand vacant and minimize the impact on communities where they are located.  More broadly, halt the perpetuation of blight created by these properties.  This goal should not overshadow the fact that this type of legislation simultaneously acts to help homeowners.  First, it eliminates legal delays that can be costly to homeowners and often causes them to abandon their properties. Second, it prevents expensive and avoidable penalties and makes settlements in reach for struggling homeowners.

The aforementioned successes are no doubt the fruits of an industry raising awareness around this issue.  Expedited or fast-tracking foreclosures for clearly vacant and abandoned properties is a critical component in addressing urban blight and ultimately reversing the effects of the housing crisis.  This axiom that was once known only to our narrowly framed universe is now making its way into the mainstream and the appropriate audiences are taking note. Despite this progress there is still much work to be done in judicial foreclosure states that have yet to raise the fast-tracking issue.  States like Illinois, Nevada, New York and Connecticut are just the tip of the iceberg.  Now more than ever it is important that this conversation continues to evolve and local legislatures see the value in making these changes to provide for its communities today and tomorrow. 

Law and Order

Law and Order
Ohio city attracts plaudits for tackling foreclosure blight, but major challenge remains

By Robert Klein

In many ways, Youngstown, Ohio, serves as a comeback model for similar cities around the country that have lost jobs and population since the industrial decline that began in the late 1970s.

Thanks to forward-thinking leaders who have cultivated a supportive business environment, Youngstown has become one of the most improved economies in the country, according to an analysis by the Brookings Institution. A growing energy market has sparked a manufacturing resurgence. A vibrant technology scene is attracting startup companies, warranting mention by President Barack Obama in his State of the Union address earlier this year. And Youngstown
s downtown is springing back to life as an entertainment destination.

Unfortunately, like other cities across the country, Youngstown has also suffered in the aftermath of the housing crisis, with vacant and abandoned properties straining city resources, hurting neighborhoods and driving out residents. It
s understandable that city leaders would want to take action to preserve neighborhoods, protect the safety of its citizens and help maintain the momentum of economic recovery.

However, their decision to enact what is being viewed as one of the most onerous vacant property ordinances as a solution to the problem may actually do more harm than good. The ordinance has a number of possible ramifications, with three apparent major drawbacks in particular some deem worthy of rumination.

Good Guys Pay, Bad Guys Don
The first concerns the fact the ordinance requires the owner of a vacant property to post a cash bond of not less than $10,000 to assure the continued maintenance of the property until it either moves through the foreclosure process and is sold to a new owner, or is demolished. The definition of an owner has been broadened to include the person in title, the entity that holds the mortgage and even authorized agents and vendors of the mortgage company who have direct or indirect control of a property.

Here is the sad irony: Irresponsible owners who let their properties deteriorate in the first place aren
t likely to comply with the ordinance. Code enforcement officers and other officials will waste precious time chasing ghosts, with nothing to show for it.

On the other hand, the vast majority of mortgage companies and their agents who already secure and maintain properties abandoned by homeowners could be penalized by the ordinance and forced to pay, even though their properties aren
t causing problems.

Lienholder Conflict
Second, until mortgage companies take legal title to a property, their rights are limited—even when homeowners abandon properties. Prior to an actual foreclosure sale, banks can only perform services to prevent code violations and protect the collateral value of the property in the absence of an occupant. In other words, the requirements of the Youngstown ordinance will most likely conflict with laws limiting a bank
s rights prior to foreclosure.

The expanded definition of a homeowner in the Youngstown ordinance actually sets up the city for potentially expensive and protracted legal actions. In fact, two years ago, the city of Chicago considered similar language in their ordinance, defining lienholders as homeowners prior to foreclosure. Ultimately, they removed the language after listening to the concerns of the mortgage industry in this regard.

It Doesn
t Fix the Problem
Third and finally, the worst enemy of a vacant property is time, and the Youngstown ordinance seems to do nothing to address this. If the city of Youngstown really wants to protect the condition of vacant properties and make banks responsible, the answer might be to help them take possession more quickly. That requires a change in state law to accelerate vacant properties through foreclosure.

In Ohio, the foreclosure process can take two years or longer, whether the property is occupied or abandoned. Even with the billions of dollars the mortgage industry spends annually across the country to inspect and maintain vacant properties, these homes will deteriorate as they await foreclosure. Many will be vandalized, losing value, becoming neighborhood nuisances and negatively impacting surrounding properties.

When a property is deemed vacant and abandoned, accelerating foreclosure would allow banks to obtain title while the property is still in good condition so that it can be sold and reoccupied more quickly.

For some, accelerated foreclosure is a far better alternative to vacant property ordinances. It can reduce the burden on city code enforcement officials and first responders to address nuisance issues. It can protect the condition and value of vacant properties, especially those in fragile neighborhoods. And, perhaps most importantly, it can help maintain viable housing for families, especially first-time home buyers and lower income people.

s leaders have demonstrated a progressive attitude toward rejuvenating their city. There is a strong argument that says they should continue to lead the way to protect homes and neighborhoods across Ohio by promoting legislation designed to accelerate the foreclosure process for vacant and abandoned properties.

Key Concepts

ü  Mortgage companies and their agents who already secure and maintain abandoned properties could be penalized by a new Youngstown, Ohio, ordinance and forced to pay.

ü  The requirements of the Youngstown ordinance will most likely conflict with laws limiting a banks rights prior to foreclosure.

ü  If the city really wants to protect the condition of vacant properties and make banks responsible, the answer might be to help them take possession more quickly.

Fighting Blight

Fighting Blight
Stakeholders Should Word Together

By Robert Klein
There is not a community in America that is immune to the national blight epidemic.  While there is not a silver bullet to cure this devastation, I do believe there are innovative solutions, as well as common sense measures that can be taken to ease the burden on communities, homeowners, and local governments. This takes a multifaceted approach that uses a combination of resources to breathe life back into hard hit communities.  Rehabilitation and fighting blight cannot be done in a silo. It requires bringing stakeholders to the same table and thinking creatively to produce a solution. 

This method is currently being tested at what is called the “ground zero” of the foreclosure crisis in Slavic Village of Cleveland.  Slavic Village is the story of a private-philanthropic partnership coming together to fight blight by rehabilitating a Cleveland neighborhood where between 23% and 30% of the homes are vacant. The focus of the partnership formed between Slavic Village Development, RIK Enterprises and Neighborhood Progress Inc. is to obtain properties from lenders, mortgage servicers, and the local land bank in order to renovate the homes to sell or rent.  This process removes bureaucratic obstacles and also has the ability to bring large scale improvement to a community in a relatively short amount of time. 

In Slavic Village homes beyond repair were identified immediately to support the overall redevelopment.  One of the most important steps in rehabbing a community is identifying what cannot be salvaged. Unfortunately, there are often challenges in getting the demolition process underway as the permit process can be both costly and time consuming.  This proves that greater education is necessary on the need for demolition and its associated benefits. 

While many may consider demolition as a last resort, it is in fact a vital step in a comprehensive approach.  It is impossible to cultivate development and garner interest from investors if homes that cannot be saved are still standing. If the proper steps are not taken to remove a nuisance property then rehabbing efforts are futile.  There are also several benefits in demolition including stabilizing property values and eliminating older homes that contain dangerous substances such asbestos.  Additionally, many of the materials from demolished properties can be recycled. 

Land banks are a great tool in getting rid of nuisance properties.  Centralizing vacant and abandon properties is a highly effective way to fight blight.  Land banks can make the process for starting demolition more efficient and increase the effectiveness of property preservation.  Communities are increasingly considering the possibility of land banks as a way to recover and repurpose vacant properties, and servicers with surplus real estate owned properties are recognizing the value in donating to land banks.

Property preservation is the bottom line in maintaining home values, avoiding extreme rehabbing or demolition and ultimately fighting blight.  I believe one of the best tools at our disposal in this battle is a new innovative product that secures vacant properties, preserves home values, and increases neighborhood safety.  SecureView is an alternative board-up system that is designed to look like traditional windows providing clear views, letting in natural light. This is revolutionary way to secure vacant and abandoned properties without exposing their vacancy. By utilizing SecureView rather than traditional methods for securing homes, both marketability and safety are enhanced. SecureView is the only product that allows first responders to see inside a vacant property in the event of an emergency.

Made from 100% recycled materials, it is virtually unbreakable, which means it has the wherewithal to protect property from intrusion, and reduce the crime and squatting so often associated with plywood and steel board ups.  SecureView can be modified to fit any window, and is quickly and easily installed using a simple but effective compression bolt system. This is truly an effective solution to the issue of blight, increasing a property's value due to improved curb appeal, which in turn helps to stabilize the entire neighborhood.

There may not be a silver bullet in fighting blight but this is a close second. Although the Nation has begun to climb out of an economic recession, this industry will continue to rebuild communities facing the aftermath of a housing crisis. 

If we can recognize our collective resources and take a step back to think outside the box a little, we can help these communities join the rest of America on the road to recovery. 

It is my hope that Slavic Village, the “ground zero” of the foreclosure crisis, will be looked at as a model for rehabilitation rather than a reminder of devastation. 

Published in the June 20013 Edition of HousingWire Focus Magazine

Our Communities Deserve Better

Our Communities Deserve Better
The Case Against Plywood

By:  Robert Klein

In the housing industry we use the word blight on a minute by minute basis.  How can we fight it, how can we stop it, how can we solve it?  We discuss the harmful consequences of squatting and why plywood is antithetical to neighborhood stabilization.  And we know that these boarded up properties are a breeding ground for crime.  Unfortunately, the issue of crime has become more pressing and dangerous.  There are documented incidents around the Nation of victims being lured, or worse forced into properties boarded with plywood. Just this week in my hometown of Cleveland, Ohio three young girls lost their lives in a vacant home where plywood covered the windows.  This year America cheered as three women reclaimed their lives after being held captive in a home shielded by plywood for a decade. 

Under these circumstances plywood is an accomplice, implicit in the death of these women.  The fact that we still use this material to “secure” vacant homes is dangerous and arguably negligent when the technology exists to prevent unwanted entry and allow bystanders to see inside vacant homes.  This technology is SecureView.  SecureView is an alternative board-up system that is designed to look like traditional windows providing clear views inside a home.  It is revolutionary way to secure vacant and abandoned properties without making them appear unoccupied and it is the only system that allows first responders to see inside in the event of an emergency.  Most importantly, SecureView is virtually unbreakable which means that intruders cannot enter in the first place.  Tested on properties in high crime areas with repeated instances of squatters, SecureView has proven to withstand vandalism and prevent entry from unauthorized visitors.  If this sounds like a no brainer to you, you are right. 

We live in a technology obsessed society where we are always looking for the next best thing.  The way we protect our communities should not be any different. We can do better than plywood and we have to do better. 


Understanding Eminent Domain

Understanding Eminent Domain
Why Robbing Peter to Pay Paul Robs Us All

By Robert Klein
When most Americans hear the words eminent domain they naturally think of a traditional definition involving government intervention that ultimately supports the best interest of a community. Perhaps the county bought a portion of a farm for a major highway or a blighted house is condemned by a local government for safety purposes or you are underwater on your mortgage so a third party refinances it.  If the third use of eminent domain sounds questionable to you, that’s because it is.  This concept is currently being debated in the housing industry to allow for state and municipal governments to exercise eminent domain as a way to obtain and restructure underwater mortgages.  Some municipalities have already adopted this practice, while others have taken it under consideration. 

The process involves governments acquiring mortgages from private trusts that have debt greater than the value of the home, in order to refinance and repackage the mortgages into new securities for resale to new investors.  This practice is primarily targeted at securitized mortgage loans, due to the structural challenges in orchestrating write downs.

It goes without saying that the process is complicated, but what really needs to be articulated are the consequences associated with excising eminent domain in this manner.  The suggested funding source is aimed at federal programs that lend monies for stabilization purposes or from third party private investors.  In either scenario the original mortgage investor suffers a loss.  This is antithetical to the traditional use of eminent domain where private parties are remunerated for the use or loss of an asset. 

Worse, this practice will undoubtedly have a negative effect on future interest rates as lenders will be forced to calculate the eminent domain factor into mortgage contracts.  That is if lenders will even do business in communities who utilize this practice. This means that future home buyers ultimately bear the burden of a past foreclosure crisis and the dream of home ownership becomes even more unattainable. 

As the federal government takes one step forward, easing out of the GSE role, governments around the country take two steps back when they look to eminent domain to solve their housing problems.  The only individuals likely to benefit here are third party investors who prey on local governments as a tool of implementation.  This is neither a fair, nor equitable way to address the problems of the housing crisis. 

Setting the Record Straight on Demolition

Setting the Record Straight on Demolition
How Demolition Can Stabilize a Community

By Robert Klein
Recovering from the national housing crisis has been and continues to be a long, multi-stage process.  The housing market will play a critical role in the broader economic recovery of our Nation.  After implementing new banking regulations and budget cutbacks, lawmakers have turned their attention to repairing the fabric of America:  our cities, neighborhoods, and small towns.  States around the country are making strides towards legislation for fast tracking foreclosures and some governments have even instituted statewide vacant property registration guidelines.  On the surface, this subject may seem a lot simpler than other issues Americans have dealt with in the wake of the housing crisis, and while rebuilding America’s communities may not be as complex as crafting the Dodd-Frank bill, it is much more than bricks, mortar, and 2x4’s. There is a lack of understanding of the most effective way to implement the revitalization process.  I believe it requires a holistic approach with several simultaneous steps and demolition is a critical starting point. 

While many may consider demolition a last resort, it is in fact a critical component of a comprehensive approach required when rehabbing a community.  It is impossible to cultivate development and garner interest from prospective home buyers and investors, if homes that cannot be salvaged are allowed to remain as a blight to the neighborhood.  These properties present a health and safety hazard for residents and neighboring homes and make it impossible for home values to rise. If a nuisance property is not removed or renovated, then rehabbing efforts are futile. 

There are also several benefits associated with demolition, including stabilizing property values and the elimination of substandard housing stock that may contain dangerous substances such asbestos.  Also, many of the materials from demolished properties can be recycled.  Cities are now repurposing the lots from demolished homes into green space, parks and playgrounds to cultivate community development.  More importantly, demolition paves the way for salvageable homes to be rehabilitated, allowing for the subsequent steps in the re-development process.  In the aftermath of demolition we can create these community pulse points and allow neighboring homeowners to preserve their property values and see their neighborhood or small town come back to life. 

Unfortunately, there are often challenges in getting the demolition process underway as the permit process can be both costly and time consuming.  This proves that greater education is necessary on the critical need for demolition and the associated benefits.  Dollars from both the Neighborhood Stabilization Program and the Hardest Hit Fund have been dedicated to demolition efforts.  Yet despite this, in many states across the country there has been a struggle for communities to get their hands on these funds because of the stigma associated with demolition.  If the proper funds are not distributed for demolition efforts then dollars spent to keep people in their homes and rehabilitate communities are completely undermined.

We need to educate people on what demolition really means.  Demolition is not tearing down your grandmother’s home or the house you grew up in or destroying homes that could be used for affordable housing.  Houses that need to be demolished are no longer homes at all.  They are properties that endanger your community, perpetuate blight and prevent any revitalization efforts.