National and local compliance regulations and laws have changed the way property preservation field service companies now do business. Although such laws and regulations were in large part enacted in the past few years following the mortgage crisis to protect the consumer, some appear to have been written by legislators or officials who were not all that familiar with the field services industry and the benefits it provides. Although good intentions may have existed, these measures have created more confusion, delay, and increased the cost of maintaining vacant properties that are in loan default or foreclosure.
Compliance is very costly and time consuming, yet the fees paid to preservation companies by lenders and loan servicers, and those fees allowed by the GSE’s, have not increased proportionately (or at all) to help offset the compliance costs. Company personnel and resources previously used to conduct business and provide service to clients, are now dedicated to answering lengthy and detailed compliance questionnaires, producing documents for client audits, and working on compliance policies and procedures. Significant time is now spent in on-site audits with lender and loan servicer clients, and they are also required to conduct audits of their own third party contractors. Although the larger preservation companies may be able to absorb the cost of hiring additional employees and professionals to handle compliance requirements, smaller contractors cannot and have been forced to leave the industry.
Compliance is not all negative and does have certain benefits. It has forced preservation companies to pay more attention to protecting the consumer, evaluate and put existing policies and procedures in writing, and also create new policies and procedures in response to client and governmental agency requirements. Preservation companies have had to create and staff in house compliance and legal departments, and devote more time and attention to evaluating 3rd party risk, and oversight of 3rd party contractors and relationships. Many preservation companies also have to impose the same compliance requirements on their contractors that their clients impose on them; although many times this is not realistic or affordable. So adjustments are necessary on a case by case basis, depending on what type of service the contractor provides, the risk involved (i.e. grass cut v. exterior inspection v. securing), volume of work provided, and the size of the contractor.
Preservation companies, although generally not directly involved with the consumer or their private information, must still be proactive and cognizant of regulations and compliance requirements, including those of the CFPB and FDCPA. Paramount in all compliance is proper consumer treatment and protecting their private and confidential information from disclosure to 3rd parties.
There are numerous laws, ordinances, and regulations that have been enacted by states and municipalities in an attempt to stem the tide of unsightly neighborhood properties and blight. Registering vacant properties and having to post cash bonds, providing advance notice before securing a property or commencing preservation work, licensing of inspectors, local point of contact, court determination of abandonment, and having to coordinate interior inspections with the borrower during the redemption period, are just a few of the measures enacted. Although enacted with good intentions, these laws and ordinances have caused additional delays and increased the costs of preserving and protecting properties.
The preservation industry has changed significantly. A few years ago, the general public had no idea who they were or what they did. Today, the industry is on everyone’s radar, including plaintiff lawyers, state and federal attorney generals, and other enforcement and prosecutorial agencies. It is now more important than ever that the industry strives to be compliant and to work together with (not against) government officials to keep properties maintained, preserve value, and prevent blight.
About The Author
Tom Kalas is Chief Legal Counsel at Five Brothers. He earned his law degree in 1988 from the University of Detroit-Mercy School of Law. He is a licensed attorney in the state of Michigan and has served as principal attorney for his law firm since 2002. Tom’s practice has significant involvement with real estate finance, creditor/debtor restructuring, construction liens, property tax appeals, zoning and land use litigation, with an emphasis on complex civil litigation and real estate transactions. He has represented local and national developers, builders, contractors and suppliers for all aspects of land acquisition, zoning, entitlements, and site plan approvals on projects ranging from a few million to several hundred million dollars.