Foreclosed Property Maintenance: Model Ordinance?

Overview

In an ongoing effort to assure that foreclosed properties do not fall into disrepair, adversely impacting property values and safety issues in the community, on July 8, 2010 the City of Los Angeles Department of Consumer Affairs began its City of Los Angeles Foreclosure Registry Program (Registry).

The Council of the City of Los Angeles passed Ordinance No. 181185 on May 21, 2010 (Ordinance), which, among other things, requires lenders to register their foreclosed properties, makes them responsible for their maintenance, penalizes them if maintenance is not implemented, and also provides certain protections to tenant occupants lawfully demising the premises.

While such initiatives are not new - and many lenders maintain their foreclosed houses in order to assure their value - this new law is drawing the attention of other municipalities around the county as a possible model for such protective measures.

Although many lenders work with local maintenance companies to maintain their Real Estate Owned properties (REO), and the Department of Housing and Urban Development (HUD) has its own Monitor and Maintenance (M&M) system for such purposes, many small lenders have not retained such service providers.

Consequently, an ordinance such as the one passed by the City of Los Angeles has been gaining traction with certain legislators, due to the growing blight of properties in disrepair in their communities.

The Registry further facilitates the work of building inspectors to identify who owns foreclosed and abandoned homes, specifically, the beneficiary (i.e., a lender under a note secured by a deed of trust on any unimproved or improved residential real property) or a trustee (i.e., the person, firm or corporation holding a deed of trust on such property).

Many other municipalities in California have adopted ordinances requiring registration and maintenance of vacant properties. For instance, cities in California that have enacted somewhat similar ordinances requiring registration of foreclosed properties include Fresno (Fresno Municipal Code Section 10-620), Oakland (Oakland Municipal Code Chapter 8.54), and San Bruno (San Bruno Municipal Code Chapter 5.26).

The extent to which certain provisions of the Ordinance, as written, are enforceable under state and federal law may be questionable, and it is therefore possible that such provisions will be susceptible to legal challenge. Beneficiaries, trustees and any others affected by the Ordinance may wish to consult with legal counsel to understand their obligations under the Ordinance and the best practices to comply with such laws.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Certain Features

• Effective Thursday, July 8, 2010.

• Lenders are responsible for cleaning up their foreclosed properties to prevent further blight and nuisance.

• Lenders are responsible for maintaining the property as soon as they issue a Notice of Default.

• Allows the City to fine mortgage lenders $1,000 per day per violation, up to $100,000.

• Lenders must register their inventory of homes in default in the City of LA Foreclosure Registry Program.

• Applies to foreclosed homes only in the City of Los Angeles.

• Consumers can report problem properties to LA City's 311 hot line.

Maintenance

In addition to the foregoing, any beneficiary or trustee subject to the Ordinance must:

• Ensure that utility services to the property are not terminated if the property is lawfully occupied
• Perform an inspection of the property prior to issuing a notice of default.
• Perform monthly inspections of the property, if occupied, until the default is remedied.
• Report any change to the information contained in the registration within 10 days of such change.

Visit Library for Issuances

City of Los Angeles Foreclosure Registry Program
Ordinance No. 181185, 5/21/2010
City of Los Angeles Foreclosure Registry Program
Registration Guidelines - Revised 7/7/2010

HUD Homes at 10% Discount

Overview

On July 12, 2010, the U.S. Department of Housing and Urban Development (HUD) announced a new initiative, the First Look Sales Method, that gives state and local governments, and nonprofit organizations participating in HUD's Neighborhood Stabilization Program (NSP) preference to acquire homes from the Department's inventory of foreclosed properties, commonly known as "HUD homes."

A Notice outlining this temporary initiative will be published in the Federal Register. As signed by FHA Commissioner David H. Stevens on July 9, 2010, the Notice details how the sale of HUD Homes under the Federal Housing Administration's (FHA) First Look Sales Method will align NSP and FHA requirements to provide NSP grantees an exclusive option to purchase HUD homes before they are marketed to other purchasers.

Through the First Look Sales Method, HUD will offer NSP grantees a preference ("First Look") to acquire available HUD homes within the defined boundaries of NSP-designated areas.

First Look will also provide NSP purchasers with the opportunity to purchase FHA properties at a discount of 10 percent (10%) below their appraised value, less the cost of any applicable listing and sales commissions.

• The First Look period will last approximately 14 days from the conveyance of a property to FHA.

• Properties that remain unpurchased at the expiration of the First Look period will be listed and sold according to standard FHA procedures.

• Eligible NSP grantees may acquire these properties with the assistance of NSP funds for any eligible use under NSP, including rental or homeownership.

• First Look is effective from July 12, 2010 through May 31, 2013.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Discounted Sales Price

• FHA will the First Look property to the eligible NSP purchaser at a discounted purchase price of 10% below the appraised property value, less any applicable costs, including commissions.

• Minimum discounted purchase price of each FHA REO First Look property purchased by an eligible NSP purchaser (in whole or in part with NSP funds) shall be one percent off of the appraised property value.

• In no case shall the discounted purchase price exceed 99% of the appraised property value.

• The sales price of each FHA REO property is based upon the appraised value of the property.

Settlement Dates

• Each eligible NSP purchaser must close on the purchase of each FHA REO property within the same time frames that apply to non-NSP purchasers under FHA requirements.

• When scheduling the settlement date, the HUD's Management and Marketing contractor provides the maximum time allowable under applicable FHA requirements to ensure that the eligible NSP purchaser is provided with the time necessary to document compliance with all applicable NSP requirements.

Settlement date deadlines may also be extended, per the procedures and guidelines provided under Property Disposition Handbook One to Four Family Properties (Handbook 4310.5 REV-2).

Visit Library For Issuance

First Look Sales Method for Grantees, Nonprofit Organizations, and Subrecipients under the Neighborhood Stabilization Programs
Federal Housing Administration (FHA)
July 9, 2010