Barbara Sadler: Post Foreclosure Property Preservation

When a bank or loan servicer takes possession of a home that has been through foreclosure, property preservation efforts are made to get the home prepared for potential buyers. Often, foreclosed homes are run down and need considerable renovation work before it’s possible to sell them. The sooner a bank or loan servicer sells the foreclosed property, the less money is lost. Therefore, property preservation efforts need to be handled quickly so that the bank or loan servicer recovers any lost funds as soon as possible. While a bank may prefer to sell a property without having to invest in property preservation, this is not often possible. Foreclosed homes are often left in such poor condition that banks cannot sell them even by reducing the asking price significantly. Usually, a property management or property preservation company needs to come in to perform any, several, or all of the following tasks:

• Boarding or securing: A vacant property needs to be secured to prevent thieves and vandals from damaging the property or carrying off appliances and equipment. Usually, a property’s lock is changed immediately after it is foreclosed on. Then, windows and doors may be boarded up while the home is cleaned and renovated. The home will be opened up again after it goes on the market and buyers begin to visit the property for viewings.

• Winterizing: Properties located in cold climates often need to be winterized so that cold weather doesn’t cause damage like frozen pipes or appliance malfunctions. Winterizing a vacant property typically involves draining the water lines and hot water tanks. Also, antifreeze is used in toilets and other plumbing fixtures. All the utilities in a vacant home are usually turned off as part of winterization efforts.

• Removing debris: Foreclosed homes are often in a state of disrepair. They are often littered with debris that could cause safety code violations or risks of infestation by pests. After foreclosure, a home is inspected and cleaned out.

• General cleaning: A major function of a property preservation company is to perform general housekeeping around the property. A dirty property will be unappealing to potential buyers, so contractors come in to vacuum, sweep, shampoo, dust, and mop until the property is presentable.

• Handling conveys maintenance orders: Putting a property in “convey condition” involves detailing information pertinent to ownership issues and mortgage issues regarding the home. Contractors need to verify that the priority is vacant and then detail all the maintenance that needs to be performed on the property.

• Maintaining a property’s lawn: A property’s value could drop if its lawn becomes overgrown. Also, an overgrown lawn can create a public nuisance and violate building or health codes. The bank or loan servicer currently in possession of the property will be held responsible for any code violations, so maintaining a property’s lawn is important.

• Removing snow: Some communities require property owners to keep sidewalks and driveways free of snow. Therefore property preservation companies have to come out to bank or loan servicer-owned properties to clear away snow build-up as necessary to address the property owner’s liabilities.

Buyers of properties that have previously been foreclosed on should be aware of any property preservation efforts that have been made to ensure that a home on the market has maintained its condition despite being vacant for an extended period of time. If preservation efforts are not made, it could cause damage that affects the home’s plumbing fixtures, appliances, and structural stability. When viewing homes, buyers should ask questions regarding what preservation efforts are being made so that they gain an understanding of the actual value and condition of the home. Banks sometimes foreclose on so many buildings it’s impossible to dispose of them quickly.

Offering to preserve and maintain foreclosed property requires actively marketing yourself to the banks and property management firms in your area. You and your teams also need the skills and licenses to do the job. The more services you offer, the more jobs you can take. Depending on your skill set, broadening your scope may require hiring employees or contractors, not to mention buying more equipment. When you’re just starting out, you can keep costs low by only taking jobs you can handle in-house with minimal equipment. Market research may tell you which services are most needed in your community. Property preservation is the process of caring for the inside and outside of a foreclosed property, be it vacant or occupied. Property preservation businesses work with banks and asset management companies to provide services such as repair, inspection, insurance claim management, and maintenance. Property preservation is also called “mortgage field services,” and getting involved with completing REO rehabs and property preservation repairs directly for national servicing companies will help your business succeed. Another great option is to work as a subcontractor for a company who also works with national servicing companies. In order to do this, you should become a Property Preservation Repair Vendor or an REO (real estate owned) Repair Vendor. REO, as you may know, stands for “real estate owned,” and is a real estate and property preservation term that organizations in the United States use to describe a certain class of real estate, or property. These properties are usually bank-owned properties that have been seized by the banks or lenders from residents who were unable to pay their mortgages. Once you’ve educated yourself about the property preservation business enough that you know what you’re doing, it’s time to find a few companies in your state, and fill out their online vendor applications. Keep in mind that banks are serious businesses you want your company to appear steady and reliable, so take all the usual precautions and they will want to work with you. You have to register online with the banks and other companies as they will not work with companies who have not. In order to get this work from banks, your company will have to actively market itself to the banks and the local property preservation companies in your state or area. This requires that your company and employees have all the skills and licenses necessary to perform property preservation so make sure you get those. In general, if you have more skills and more licenses stating that your are qualified to perform those skills, banks will be more interested in you, and send more work your way.

If you’re not comfortable calling people or speaking to them about your business, get comfortable. Some of the best recommendations in this business can come from word-of-mouth. If you’re already in the construction or repair business, you probably have some connections that can help you get started; if not, the banks and property preservation companies in your area can help you get started. When you first start out in the property preservation business, you should only take the jobs you can handle with limited personnel, doing them well and rapidly to make a name for yourself. As your business grows, and word-of-mouth or marketing does its job, you may want to take on larger job. HUD handles property preservation for properties that have been foreclosed on and will soon be foreclosed on – they also handle the property inspections, renovation permit, and access restrictions that they will pass on to you if you work with them. Always keep in mind while you are performing your work that part of your job is to make the properties look attractive to prospective buyers once the bank or management company is ready to resell them. Some people call this “curb-appeal,” and it’s a basic tenet of this business. HUD guidelines include property “accessories,” meaning swimming pools and spas and outbuildings like garages and sheds that may be on the property. There is also a registration fee that property preservation companies must pay on each property they want to care for – this fee may be reimbursed if the company owner completes the proper forms and submits to them HUD. Next, you need to meet at the property with your contractors (if you have them) and determine which repairs are necessary, and that the property can sit without much maintenance for a long period of time. Preparation for inclement weather is a large part of this step. While it’s true that many small property preservation businesses have a hard time getting off the ground and staying afloat, my best advice to you is to treat your business like your lifeblood, not like your side job. When you start a business, you want it to succeed, so it should be one of the most important things in your life. Don’t give up just because the going gets rough, and always provide the absolute best service to your clients and companies that you are capable of. Complete the work the way you were asked to, and take photos or write down issues you have for proof later. Remember, your clients need you, and your business will provide years of stability if you run it correctly.

If a homeowner is unable to complete repayments on their mortgage, they may be forced to default on the loan. If the owner defaults on the mortgage for a given number of months, the bank that originally loaned the homeowner the money to purchase the property can legally repossess it and take ownership of it. At this point, the property is referred to as a foreclosure or real estate owned (REO) home. The bank’s primary objective at this point is to recover as much cash from the loan as they can as opposed to accumulating real estate assets. As such, they will be motivated to sell the property as quickly as possible. Some homeowners take out a Federal Housing Association (FHA) insured mortgage. If the owner of a property that is backed by an FHA-insured mortgage defaults on loan repayments, he or she exchanges the property for an insurance claim payment through the Secretary of the Department of Housing and Urban Development (HUD), the Federal agents that manages national policy in this domain. Properties that have been traded in this manner are referred to as HUD homes. Both banks and the HUD will use the services of a private operative to sell the property on their behalf. The HUD refers to these contractors as management and marketing (M&M) contractors or asset management companies. These companies will also subsequently subcontract the sale and maintenance of the property to a third party, usually a realtor or local service provider. During this program, the companies that sell properties on behalf of the banks and HUD will be referred to as asset management companies (AMCs) or M&M contractors. As this program progresses, you will be taught the methods you can use to identify key AMCs, form productive relationships with them and position yourself as a key contact with whom they trade business opportunities. In addition, you will also learn how to identify and develop a network with the realtors who are awarded the REO listings. Forming effective relationships with such realtors will provide you with a further opportunity to secure profitable work. A foreclosure auction is just what it sounds like — an auction to sell a house that has been foreclosed on. You may have seen people on the HGTV channel who flip houses going to these auctions and bidding on foreclosed properties. Well, property preservation and REO businesses also deal directly with these foreclosed houses. At a foreclosure auction, the bank or lender who owns the property is not allowed to profit from the auction, and the properties are often sold at a loss. Any profit goes to the homeowner and any other liens that are present on the property. If the foreclosure auction doesn’t work, and the property doesn’t sell for any reason, it automatically becomes an REO property. Most of the properties you work on will be headed for foreclosure or may have already been foreclosed. Unfortunately (or fortunately depending on how you look at it), the majority will fall into the latter category. Luckily, this can mean big bucks for you. After the clean comes the makeover and, here too, you can offer your services and run a tidy profit in the process. Your customers will typically be banks, the HUD, realtors, and even investors. In many cities, local governments operate bylaws that specify that REO properties must be kept in a secure and good condition, both inside and out, at all times. Failure to do so can incur penalties of up to $1000.

As such, it’s in a lender’s/bank’s best interests to make sure the properties they own are kept in good condition at all times. The organization or entity that initially loaned the buyer the money to buy the home (the mortgagee) will be held responsible for maintaining it, regardless of whether the property was FHA-insured or not. In the case of an FHA-insured property, the mortgagees will have been pre-authorized by the HUD to spend a given amount of money on such maintenance work. We’ll talk about this in more detail on Day 5. If no FHA insurance was in place, the mortgagee or the people they appoint to manage the property on their behalf will set their own budget. Responsibility for preserving and securing REO properties is commonly allocated to an asset manager who works at the bank or is sub-contracted out to an asset management company (AMC) or M&M contractor. These groups or individuals will be tasked with reviewing the initial inspection report that the realtor or the realtor’s preservation company has published, and making the decision as to what aspects of the property should be restored and repaired and what should be replaced completely. They will also set a budget for the work and manage the tender process by which interested contractors bid for the opportunity to complete the project. Once the work is complete, they will also inspect it to ensure it is of an acceptable standard and will, ultimately, pay any invoices (we’ll discuss the important aspect of payment in a later session). In times of recession and downtown, there are a large amount of homes available for sale on the market and very few buyers. This makes property difficult to sell and means that foreclosed homes will be on the market for longer periods of time. To stand half a chance of selling them, banks and the HUD need to ensure that they are kept in good condition and maintained on a regular basis.

This is where you come in. Maintenance services involve a large number of tasks but typically include ensuring the interior and exterior of a property is kept clean and in good condition, maintaining any pool and outside areas and generally keeping everything in good shape. Providing these services can be lucrative because they are required on a monthly basis, giving you a steady stream of income. What’s more, if you were awarded the services to do the initial clean up and fix up, and you did a great job, you’ll have more of a chance of winning this ongoing business too. For this reason, when you prepare any quotation or bid for cleaning and/or transformation services, ensure you also include a section entitled “Optional ongoing maintenance services” in which you list tasks you are able to complete on an ongoing basis. Another top tip is to list “Optional decorating services,” “Optional repair services,” or similar. Sometimes an REO property can be on the market for a long time before the bank makes the decision to invest some additional cash into it in a bid to lure buyers. If you’ve planted the idea that you can provide painting and decorating services, you may also be given a chance to earn cash for interior decorating. Basically, you should ensure you take every opportunity to up sell additional services; you never know, you may just be taken up on them. Property preservation denotes a lender (or new owner if post-foreclosure sale) averting waste to the value of real property by repairing, securing, or maintaining the same, often times through third-party vendors. These steps could include (but are not limited to): changing locks, preventing squatters, winterizing to avoid damage, cutting grass to pre-empt a municipal lien, fixing damages such as broken windows, and other related precautionary measures. During the pre-foreclosure sale period, property preservation is governed by contractual obligations in the deed of trust. Once a foreclosure is complete, determining how to proceed requires evaluation of the home for signs of occupancy, extent of any damage, and remnants of any personal property. If the property is vacant, the new owner may change the locks and start the REO process.