Select Print Feature, originally appeared in the May, 2013 issue of DS News Magazine.
Can servicers and their partners in the field work through the many obstacles that come with fast-tracking vacant foreclosures?Several jurisdictions are considering legislation or ordinances that would accelerate foreclosure proceedings for vacant and abandoned properties when the borrower is no longer present. While fast-tracking would mean these “zombie” foreclosures aren’t spending extended periods with no maintenance and contributing to neighborhood blight, there are, of course, obstacles to the fast-track approach that could impede progress in this area for local officials, servicers, and property preservation professionals. Though the idea looks great on paper, how easy will it be to implement and execute? DS News posed this question to two industry experts whose companies have a front-row view of the damaging effects extended vacancy periods can have on individual properties and on local communities, and asked them to weigh in on the issue.
According to Lynn Effinger:
One of the hottest topics in the default servicing industry today is the call coming from a growing number of field service providers for fast-tracking the foreclosure process on vacant, abandoned residential properties.
This subject is controversial because today any mention of “foreclosure,” especially when combined with the phrase “fast-tracking,” evokes negative connotations. And that’s the reason why I think the term “blight abatement” should be considered to replace “fast-tracking foreclosures” in this context.
While a rose by any other name is still a rose, action by municipalities and states to deal with the growing problems associated with vacant, abandoned properties should not be held hostage to terminology. Countless neighborhoods have been negatively impacted over the past several years by the blight and other consequences that accompany increased abandonment of residential real estate properties, especially in many inner cities. This situation needs resolution to help communities rebuild and protect local property values.
Because Assurant Property Advantage and other field services providers are responsible for inspecting, securing, and preserving millions of properties across the country, we know intimately the impact that vacant, neglected properties have on neighborhoods and local economies. Our collective voice has grown loud recently and we’re not only being heard, but listened to by municipalities and states that want to find a solution for this sensitive and complicated issue.
In its 2012 session, the Illinois General Assembly passed a bill that could dramatically reduce the foreclosure timeline for abandoned properties. Currently in Illinois, it can take more than two years to process a foreclosure, and Senate Bill 16 could cut that time to as little as 90 to 100 days. One of the keys to the potential success of the Illinois legislation is the foreclosure courts’ ability to push cases through once the lender demonstrates abandonment.
Another state that seems to have heard the field service providers’ cry is New Jersey. Senate Bill 2156 is a proposed piece of legislation headed to that state’s Assembly that would allow courts to grant summary foreclosure action when a subject property is certified vacant. In New Jersey as in other judicial foreclosure states, particularly New York, moving abandoned properties through the foreclosure process is quite protracted. This new state bill, if passed by the Assembly and signed by Gov. Christie, would require lenders to present to the court “clear and convincing evidence” that the subject property is in fact vacant and abandoned. With that evidence accepted, the lender would be allowed to fast-track the foreclosure process, accelerating blight abatement.
Similar legislation instituted in Colorado and in municipalities in Florida is being watched closely for signs of success. As with much legislation, often what sounds good in theory may not work out quite as planned and sometimes carries unintended consequences, but at least this issue is getting some attention and people are making strides toward finding the right solution in their local communities.
According to Randy Wussler:
Clearly, this idea is gaining some traction in places like Illinois and New Jersey, and it does sound like a great way to attack a very real problem we’re facing—REO supply.
There were some nice drops in REO inventory in many markets between 2011 and 2012 (Clark County, Nevada, down 55 percent; Los Angeles County, California, down 41 percent; King County, Washington, down 41 percent), but we’re still not close to a “normal” market. When you look at various months’ supply of REO inventory—an even more telling metric—you can see that we’re going to be saddled with this problem for some time. In San Diego for example, REO inventory was down an impressive 36 percent between 2011 and 2012, but months’ supply was down just 8 percent.
This problem is going to linger as supply starts to come back and as discount rates on distressed properties fall—both of which we’re seeing in some markets already. Anything we can do to move these properties off the books is good, but the challenge with fast-tracking foreclosures will be two-fold: executing the legislation and getting banks to back the movement.
On the execution side, it will be interesting to see how authorities determine if a property is vacant. In New Jersey, they’re looking at things like overgrown vegetation; accumulation of newspapers, flyers, and garbage; broken doors and windows—things authorities deem “safety and welfare threats.” These are going to be arbitrary calls and it will be difficult to get a consistent assessment across all properties. In most cases, you’re probably right in deciding that a property has been abandoned, but what about the homeowner who just doesn’t go out much or doesn’t care about curbside appeal? How exactly do you enforce something like that?
The Illinois law presents another concern. Here, once you establish that a property is vacant, you’re supposed to be able to get in front of a judge within a 15-day timeframe, but getting a court date in that amount of time seems pretty aggressive. The industry will definitely face some challenges on the judicial front.
The idea of fast-tracking vacancies is great, but execution is a bit of an unknown right now, which leaves a myriad of questions unanswered.
That brings me to the second part of the two-fold challenge. Banks are still paying the price for the robo-signing era. Given the negative press that’s come from those actions, the amount of money the banks will have to pay out, and all the opportunities lost because of what happened then, I think the banks are going to be a little gun shy about going after something like this in full force.