Problem Solving with Code Enforcement Officials

Code enforcement officials cover a lot of ground both in both small towns and large cities.  Whether it is enforcing guidelines that support health and safety rules or uphold housing standards, their primary function is to ensure compliance with local policies to ultimately protect the communities they serve.  In my world, I work closely with officials who are tasked with dealing with housing issues, more specifically, homes that are vacant or have been abandoned.  Coming from all parts of the Nation, they have various challenges when enforcing housing codes but they all share one common goal and that is to protect the interests of their community.  Because of that singular goal and dedication to their community, it is of the utmost importance that we include this group of experts in their own right, in industry conversations on how we can combat blight. 

It goes without saying that for the better part of the last decade, the crash of the housing market has made the demands of code enforcement officials unrelenting.  As vacant and abandoned properties piled up in America’s cities and towns so did the code violations.  With limited budgets and few tools to track down the party responsible for these violations, enforcement officials found themselves at a loss.  To remedy this they spoke up and made their voices heard.  They used their direct connection with these communities to solve major enforcement problems.  However I believe we still have a major challenge with our ability to effectively communicate with this segment of the industry, especially when discussing community blight. 

One of the most important things we have learned through this crisis is that when creating solutions our whole is more than the sum of our parts.  While our ability to collaborate has come a long way, it is my opinion that if we did a better job of bringing code enforcement officials into conversations with lenders, servicers, and property preservation organizations, we could more easily create effective solutions. Code enforcement officials offer an exclusive perspective on blight that we are not able to take on in an empathetic kind of way.  Their first-hand experience in communities with unique challenges and problems is vital to policy making. 

Having these individuals in the room will not only make us smarter, it will make our solutions smarter.  Let’s remember that the next time we sit down to solve problems.  Working independently maybe we can solve one or two of our problems, working together we can solve industry problems. 

 

Cuyahoga County Land Bank: Slavic Village Recovery Project brings Big Changes to the Historic Neighborhood

Check out the Slavic Village feature in this month’s Cuyahoga County Land Bank Newsletter.

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In 2007 Cleveland’s Slavic Village neighborhood saw the highest rate of foreclosure nationally, not so affectionately becoming known as the “ground zero” of the foreclosure crisis. Despite nearly 30 percent of the local homes standing vacant or abandoned the Slavic Village Recovery Project (SVR), a local non-profit/private partnership, has accepted the challenge to help this neighborhood reclaim its glory days as a thriving blue-collar community.

The goal of the SVR is to redevelop the historic neighborhood by taking a holistic approach to community revitalization. The first of its kind, the strategic collaboration is a diverse alliance between Forest City Enterprises, Robert Klein of RIK Enterprises, Slavic Village Development, and Cleveland Neighborhood Progress (formally Neighborhood Progress Inc.).

The focus of the partnership is to acquire vacant and abandoned homes at little or no cost for rehabilitation and resale. The project aims to steady market volatility, stabilize the larger community and match home-buyers with a stress-free home at a good price. The holistic approach that targets several properties at a time, using both demolition and rehab, is being viewed nationally as a case study for the creation of an affordable housing model that can be replicated in communities around the Country.

In order for the concept to be successful, the SVR relies heavily on servicers and the Cuyahoga Land Bank to turn over the vacant and abandoned homes for rehabilitation. Since June, the Cuyahoga Land Bank has contributed 11 homes to support the effort and expects to provide additional properties as progress is made.

“Communities are increasingly seeing the value of using land banks as a way to recover and repurpose vacant properties,” said Robert Klein, the SVR partner who developed the project model. “And servicers with surplus real estate owned properties are recognizing the value in donating to land banks and organizations such as SVR.”

To date the partnership has achieved measureable success beginning in July when over 70 volunteers participated in the first ever Slavic Village Community Day to clean-up nearly 70 vacant homes in the project area. Recently, they have also made public the first home to be rehabilitated at 3672 East 54th Street. The two-story, two bed-room home that began construction in mid-July received a complete internal renovation and external face lift, including a new furnace, carpeting, cabinetry, and new roof. They expect to sell the home at $56,900, making the monthly mortgage payment approximately $450, including taxes and insurance.

The SVR has completed two additional homes since and expects to complete up to five more in the coming months. Interested homebuyers should contact SVR Project Director, Jeff Raig at 216.641.2586 or email JeffR@slavicvillage.org.

National Property Preservation Conference 2013

 

I had the pleasure of joining my esteemed colleagues at the Safeguard National Property Preservation Conference this month to discuss the State of the Property Preservation Industry.  I always enjoy the chance to discuss pressing industry issues and learn from with this group. 

I also have the opportunity to sit with an equally impressive group to discuss how prior and new regulatory mandates are shaping the industry’s expectations and driving best practices for all aspects of the business.

Check out the summaries below and visit the conference website to learn more. 

State of the Industry

Moderator

Ed Delgado, Five Star Institute

Panel

Colleen Hernandez, Homeownership Preservation Foundation

Robert Klein, Safeguard Properties

Jack Konyk, Weiner Brodsky Kider

Rick Sharga, Auction.com

Ann Thompson, Consumer Financial Protection Bureau

Session Overview

During this session the panelists provided a high-level overview of the most current issues within the mortgage servicing industry. Ed Delgado led a dynamic conversation on topics such as regulatory oversight, homeownership, the role of the property preservation industry, and the industry’s future.

Regulatory Oversight

The panelists began by discussing government oversight on the mortgage servicing industry and how policymakers formulate rules and regulations. They explained that new laws are created by a group of well-intended legislators that are not necessarily housing experts, often leaving regulatory bodies to figure out how to implement guidelines. Increased directives can result in confusion and in the end make it more difficult for the average homebuyer to purchase a home.

The panelists examined how foreclosure timelines vary from state-to-state and short sales can be problematic in various ways. The panel also discussed that foreclosure practices in use prior to the housing crisis were not modified to deal with the volume in today’s market. As the number of foreclosures has grown and timelines become longer, property preservation companies have created new procedures to deal with the increase.

Homeownership

The behavior of homeowners has changed in the aftermath of the housing crisis. Panelists described the financial stress that homeowners feel is due to a variety of factors, from credit card debt to underemployment and the growing need to drive consumer attitudes towards living within their means. To solve this issue it is necessary to work with homeowners to examine all financial limitations that extend beyond mortgage difficulties.

Role of Property Preservation

Panelists pointed out the important role property preservation plays when efforts like financial education and loan modifications fail. They emphasized that first and foremost the goal is to keep consumers in their homes, but those efforts do not always succeed and there must be a plan in place to deal with vacant and foreclosed properties.

The panelists discussed how the property preservation industry has changed in response to the housing crisis over the last five years. The industry had to adjust, putting controls and measures into place to deal with an increased volume. Today the property preservation industry continues to evolve and works to support community stabilization.

Industry’s Future

Panelists shared their thoughts on what the future holds for the industry and homeownership. Some of the ideas were that single family rentals will be a large part of the housing market because home ownership may not increase, Americans must strive to overcome their debt that prevents them from becoming homeowners, and homeownership demand will return, but not without challenges.

The Regulatory Environments Impact to Property Preservation

Moderator

Linda Erkkila, Safeguard Properties

Panel

Nickie Bigenho, Mortgage Contracting Services

Dennis Gierula, JPMorgan Chase

Rob Hicks, Lender Processing Services

Robert Klein, Safeguard Properties

Matt Martin, HUD

Michael Merchant, City of Chicago

Ann Thompson, Consumer Financial Protection Bureau

Session Overview

With the increased scrutiny placed on clients and servicers today, the regulatory environment is constantly changing and having a large impact on the industry as a whole. The panel discussed how prior and new regulatory mandates are shaping the industry’s expectations and driving best practices for all aspects of the business.

Compliance Management Systems (CMS)

A CMS is how a “supervised entity” handles its compliance responsibilities, from implementing, internally communicating, and measuring performance, to taking corrective action and making updates as needed. The panel stated that the most common weakness identified among financial institutions is deficient periodic monitoring and independent compliance audits. Risks should be identified and timeframes should be determined as appropriate for industry needs and business structure.

Background Checks

Background checks are not specifically required of third party providers, but they are recommended as part of overall risk management and mitigation. The panel noted that the industry needs to better define background check requirements and determine what level of scrutiny is appropriate. It is important to maintain a process that does not interfere or jeopardize the contractor’s status as a non- employee, and there is also the fundamental concern of the Fair Credit Reporting Act requirements as well.

 

Audits

Audits have become more thorough and complex over time. Historically audits were relatively short scripted. Today’s audits are much more thorough. They may happen quarterly, with advance requests for data, while lasting several days and possibly including IT audits as well. Audits will continue to evolve. Audits can be intrusive, but their purpose is to identify risk and resolve potential or identified issues before they escalate or become the focus of regulators. Regulators coordinate to ensure there is consistency and no conflicts, though there may be varying levels of control required in some cases. The panel addressed the possibility for centralized audits in the future, as the process is still being defined. It was acknowledged that the challenge of third party audits is the question of, “Who audits the auditors?”

Fast-Track Foreclosure and Anti-Blight
The panel agreed that fast-track foreclosures have a positive impact on communities and the process should be used more, as such initiatives are anti-blight and anti-crime initiatives. However, they acknowledged that the process can be challenging because of conflicting time constraints.

Vacant building ordinances have also made a positive impact on blight. Panelists agreed that Chicago’s ordinances should be a model for other communities, as it is balanced and clear. It was suggested that servicers should work to keep regular communication with code officials to remain aware of big issues in the community.

In Conclusion

The increase in regulatory oversight requires the entire industry to adjust processes and procedures, but there are many tools available to facilitate these new requirements. Industry leaders can and should work together to define best practices and succeed in this new environment.

About the National Property Preservation Conference
In 2004, the National Property Preservation Conference was established by Safeguard Properties Founder and Chairman Robert Klein to provide leaders and servicers from across the mortgage industry an opportunity to gather and focus solely on preservation. Each year, pressing issues in the industry are discussed and solutions are developed. The conference has become a forum for strengthening partnerships, cooperation, and support throughout the industry, which is imperative to the continued success of all involved in mortgage servicing.

Hope Now Quarterly Fly-In

Last week I had the chance to join some of my colleagues in the housing industry at the HOPE NOW Quarterly Fly-In.  I cannot say enough good things about this organization that works to keep Americans in their homes. 

To learn more about HOPE NOW and our discussion last week, check out the summary below. 

Moderator:  Laurie Maggiano, Servicing and Secondary Markets Program Manager, Office of Research, Markets, & Regulations, Consumer Financial Protection Bureau

Speakers: 

Robert Klein, Chairman and Founder, Safeguard Properties
Peter Skillern, Executive Director, Reinvestment Partners
Margo Geffen, Twin Cities Community Lank Bank LLC
Margaretta Lin, Esq., Department of Housing and Community Development, City of Oakland

On Thursday, October 24, Robert Klein joined a group of experts at the Hope Now Quarterly Fly-In to discuss vacant and abandon properties.  HOPE NOW is an alliance between counselors, mortgage companies, investors, and other mortgage market participants. This alliance is designed to maximize outreach efforts to homeowners in distress to help them stay in their homes and create a unified, coordinated plan to reach and help as many homeowners as possible. The members of the alliance believe that by working together, they will be more effective than by working independently.

 Joining Klein was Peter Skillern, Margo Geffen, and Margaretta Lin whom individually discussed how vacant and abandon properties impact their communities and described the solutions they have implemented in their regions. 

 Klein opened his remarks by discussing the devastating effects of blight on communities nationwide and steps that must be taken to combat this issue.  Drawing on his extensive experience as the former CEO of Safeguard Properties, Klein emphasized the need for vacant and abandon properties to be fast-tracked through the foreclosure process in order to prevent them from become a burden in their communities.   Klein cited that some states have already implemented laws supporting this process while several others are taking similar legislation under consideration.  Klein noted that implementing this type of law on a statewide scale supports the idea of taking a holistic approach to revitalizing America’s communities.  To support this concept, he pointed to the Slavic Village Recovery Project underway in Cleveland, Ohio. 

Klein described Slavic Village as a blue collar neighborhood, built by immigrants that once was a vibrant community.  Like many communities across the country, Slavic Village was devastated by the national housing crisis and continues to struggle in the aftermath of economic decline. After having the highest rate of foreclosure in the nation in 2007, Klein called rehabilitation efforts futile in the face of hundreds of vacant and abandoned homes.  This led Klein to develop the concept on which the current project is based on. 

Klein described the Slavic Village Recovery Project as a private for profit/non-profit partnership formed to redevelop the historic Slavic Village neighborhood by taking a holistic approach to community revitalization. The first of its kind, this strategic collaboration is a diverse alliance between Forest City Enterprises, RIK Enterprises, Slavic Village Development, and Cleveland Neighborhood Progress. 

Klein’s coalition has partnered with lenders, servicers, and public entities in the area to acquire large numbers of blighted, at risk, or vacant properties concentrated in the target area of Slavic Village. The holistic approach, using both demolition and rehab, is being viewed a case study for the creation of an affordable housing model that can be replicated in communities around the Country.  The project does not use public funds but has support from the City of Cleveland, as well as local stakeholders. 

Brad Dwin, Hope Now Director of Communications offered the organization’s support of the Slavic Village Recovery Project, “Since 2007, HOPE NOW has been instrumental at facilitating partnerships between the mortgage industry, the non-profit community, federal agencies and state level partners, for the benefit of finding viable mortgage solutions for homeowners,” said Dwin.  “Over the past several months, we have noticed a real need to analyze the challenge of abandon properties and bring these same partners to the table to discuss the issue and formulate a thoughtful plan for addressing the issue. We are focused on nurturing public-private partnerships to the fullest in order to meet this goal. HOPE NOW supports all efforts that promote stable communities, and we applaud Robert Klein’s work with Slavic Village.”

 

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. 

 

 

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’t
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.

Youngstown’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 bank’s 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.