Municipalities Get Aggressive with Handling REO.(Managing REO)

Byline: Jennifer Harmon

Tampa, FL-Local municipalities across the country are increasing penalties and fining lenders as much as $100 a day for code violations such as for each broken window on an REO home, according to speakers at a panel on vacant property at the Mortgage Bankers Association's National Servicing Conference here.

Robert Klein, chief executive of Safeguard Properties, a privately held field service company based in Cleveland, said servicers need to make sure their property preservation units communicate with local code enforcement officials at the city and county levels to open up dialogue and prevent this from happening.

"If you won't listen, they will look for every legal measure they can to inflict some pain," Mr. Klein told the audience. "We need to see more dialogue with municipalities."

Because these ordinances are popping up everywhere, asset managers should work with local real estate brokers across the country to determine the specific requirements in different municipalities. Right now, about 600 cities are using some form of ordinance. He said local brokers are able to gather knowledge and counsel lenders on that specific information.

According to Berry Laws, a partner with Kansas City, Mo.-based Martin, Leigh, Laws and Fritzlen PC, vacant property lawsuits are likely to occur more and more, because these properties cause problems in neighborhoods. "As values go down, crime increases, prostitution goes up, there is increased vandalism, looting of copper pipes, toilets and sinks, and properties are used for crack houses."

It is a legitimate issue for the city, he described, because the government is concerned about neighborhoods where these properties are depreciating in value by thousands of dollars and apartment values go down. But the more money a city has to spend on taking care of these properties that means less funding for local fire departments, police departments and schools, Mr. Laws added.