The Housing Chronicles Blog: Sprucing up that foreclosure from Phase 1

Wednesday, February 6, 2008

Sprucing up that foreclosure from Phase 1

As areas such as the Inland Empire and the Central Valley become California's ground central for foreclosed homes, it's not hard to imagine the brown lawns and green pools from homes sold long ago in Phase 1 or on an earlier subdivision doing a distinct dis-service to builders trying for the best marketing window along the routes used by potential buyers.

Fortunately, there are companies used by mortgage servicing companies to help spruce up properties for sale after foreclosure. From an article in the Buffalo News (where abandoned homes have become a significant issue):

(Paul) Dinehart is a quality control field representative for Safeguard Properties, an 18-year-old Cleveland- based firm that inspects, monitors, repairs and maintains abandoned and foreclosed homes nationwide for mortgage servicing companies. The company uses a network of 4,000 contractors in all 50 states to inspect or maintain about 450,000 properties at any given time, including about 1,800 in Western New York in the last two months.

He and his co-workers are part of a little-known $1 billion industry whose essential job is to make sure the houses backing defaulted mortgages don’t lose value and can be quickly put back on the market. Otherwise, lenders can’t recoup losses, and are stuck holding real estate...

With the nation engulfed in a mortgage crisis that threatens to send up to 2.2 million homes into foreclosure, most of the attention has focused on the impact on borrowers, lenders, and investors, and how to prevent foreclosure. There’s been little discussion of what happens afterwards, though.

The mortgage industry today is highly complex, with loans originated by brokers, sold to Wall Street, and packaged into investment pools whose income stream is sold in pieces to investors. But behind every investment security is a loan, and behind each loan is still a house, on a block, in a neighborhood where other people live...

Besides causing a loss to the lender, foreclosed, vacant and derelict homes can devastate the communities around them. Neighboring property values fall by at least several thousand dollars, municipal tax revenues drop, and cities and towns must spend thousands of dollars just to inspect each abandoned home, let alone maintain or fix them...

In the past, the companies did just basic work for their clients, literally taking out the trash and cleaning the houses of any debris, food and belongings left behind. But as the mortgage industry has exploded in size and its needs have evolved, so have the services they provide.

They still secure the properties with locks, board up broken windows, and repair any significant structural damage — such as roof leaks or burst pipes — as soon as they take possession of a house for a lender.

But now they also “refresh” the properties, providing maid service, mopping floors, wiping up dust, vacuuming carpets, and arranging for the grass to be cut, hedges to be trimmed and snow to be removed. They also “winterize” the plumbing, shutting off water, draining lines, and taking any other steps to ensure pipes don’t burst and houses don’t flood...

But while much of the mess has to be cleaned up, crews don’t throw everything out and don’t repair everything. Some belongings get taken to storage in case the owner reclaims them. And once the home is secured, many decisions about large repair projects or enhancements are up to the mortgage company, which will only do what is necessary and appropriate for the neighborhood, but won’t spend more than the house is worth. So the basic guideline is simply to address “anything that would deter a sale,” Dinehart said.

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