19.2 PROPERTY MANAGEMENT METHODS AND ACTIVITIES [7 CFR 3555.306 (e) and (f)] (06/22/16)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

Part of the mission of the SFHGLP program is to ensure that properties are effectively and prudently managed and maintained. The Agency mirrors HUD/FHA's maximum allowable costs for property preservation and maintenance costs. Information regarding their property and preservation cost reimbursements can be found at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-18ml.pdf. Any subsequent release regarding this subject by HUD/FHA is also applicable.

1. Vacant or Abandoned Properties The servicer may need to take custody of the security property when it has been determined that a security property is vacant or has been abandoned. The servicer must inspect the property within 30 days or less of becoming aware of the possibility the borrower abandoned the property in order to determine and document its condition. When the inspection reveals the property is vacant, the servicer should take the following actions:

• Try to locate the borrower to determine the reason for vacancy.
• Take immediate action to protect the property from vandalism and the elements to the extent the local laws allow such.

Preservation and protection requirements for custodial property are as follows:

• The property should be secured by changing all exterior locks to prevent unauthorized entry, unless otherwise prohibited by state law.
• Secure windows and doors. Boarding the property should be avoided unless it is necessary to avert vandalism to the property.
• Determine if any emergency repairs are necessary to adequately preserve and protect the property and impact the safety and soundness of the structure. Early detection of problems is critical to minimize loss in the event of acquisition. Emergency repairs exceeding $2,000.00 require Agency concurrence which is not necessary prior to completing the repair. Emergency repairs should be documented with before and after photographs and will be submitted with the loss claim. If the property sustains insurable damage, the servicer is responsible to file a claim under the borrower’s insurance policy. If the borrower redeems a property, the cost of any emergency repairs advanced will be the responsibility of the borrower. Loss claim payments are paid when a servicer legally acquires a REO and experiences a loss in the resale.
• Protect plumbing and other operating systems from freeze damage.
• Remove any interior or exterior debris that poses a health, environmental, fire, or safety hazard. Examples include, but are not limited to, highly flammable chemicals, decaying food, dead animals, broken glass or other sharp objects, and large quantities of paint or paint products.
• Mow lawns, maintain shrubs, and perform snow removal.
• Perform monthly interior and exterior inspections to document the general condition of the property and any actions required to adequately protect and preserve the property. Proper documentation must be maintained by the lender in each claim review file on the performance of inspections and follow-up activities.
• Do not post signs or take other actions that might call attention to a vacant property unless boarding the property occurred.
• Maintain receipts and invoices for all costs incurred for preservation and protection of custodial properties. Services associated with preservation and protection of properties must be typical and reasonable.
• Notify the insurance carrier regarding the vacancy to ensure appropriate insurance coverage is maintained.

A mortgage may be current or delinquent when a servicer becomes aware a borrower may have abandoned the security property. When an inspection reveals that the property is vacant or abandoned and liquidation is not already in progress, taking custodial possession should immediately initiate the foreclosure process.

1. Managing REO Property The goal of the servicer and the Agency is to market and dispose of REO property in a manner that maximizes recovery and minimizes loss. Consequently, efforts to secure and preserve the property should begin once the servicer has possession of the property through a foreclosure sale or deed-in-lieu. HB-1-3555 19-3 (03-09-16) SPECIAL PN Revised (06-22-16) SPECIAL PN When the property is associated with a HOA, the servicer will communicate with the association to redirect future billings for HOA fees owed to the servicer. The servicer is responsible for taking reasonable actions to protect the value of the security during the REO marketing period. Actions must be taken to preserve and protect the property to prohibit degradation and protect against any potential injury or death. The servicer must carefully document all property management activities and decisions in order to ensure full reimbursement of costs at loss claim. The servicer must make reasonable and prudent efforts to ensure that the condition of the security property is maintained during the REO marketing period. The servicer must ensure proper maintenance of the security property by performing regular interior and exterior assessment inspections and property preservation actions as follows:

• Inspections during REO. Perform monthly interior and exterior inspections once custody of the property through foreclosure or deed-in-lieu has occurred.
• Secure properties to prevent unauthorized entry and protect against the elements. Secure all windows and doors. It is preferable to replace broken glass unless boarding of the property is to deter vandalism.
• Necessary Repairs. Perform necessary repairs to protect the property with the most cost effective method. For example, roof damage can result in property deterioration resulting from moisture accumulation and mold growth; repairs, such as patching and replacing loose shingles should be made immediately. Tarping can be used as a temporary repair measure until more permanent repairs are made. Document any repairs made to the REO properties with before and after photographs of the damage and any subsequent repair work. Necessary repairs in excess of $2,000.00 require Agency concurrence.
• Suggested Repairs to Improve Marketability. Repairs to improve marketability must be submitted for prior approval using servicer’s property disposition plan as outlined in Section 19.4 of this Chapter.
• Debris Removal. Servicers will maintain complete documentation on the amount and type of debris removed. Examples of debris other than household debris would include health and safety items, tires, appliances, cars, trucks, boats, batteries, etc. Documentation regarding who performed the debris removal service, the amount of debris by cubic yards disposed of and/or dumpster service engaged must be maintained for a future loss claim review. Photographs supporting unusually high debris removal expenses further assist in supporting a servicer’s cost reimbursement request.
• Plumbing and heating systems must be drained in a manner sufficient to prevent freeze and/or damage as required by weather conditions in the area.
• Utilities should be turned off unless required to protect the property and/or obtain maximum exposure during the marketing period. Electric service should not be turned off when necessary to support efforts to prevent flooding or reduce growth of mold and mildew.
• Yard Maintenance. Yard maintenance activities such as grass cuts, shrub trimming and snow removal are required for REO property. Servicers must comply with local code and ordinances regarding yard maintenance.
  • Grass Cuts. Initial and subsequent lawn maintenance includes lawn mowing, weeding, edge-trimming, sweeping of all paved areas (e.g., sidewalks, driveways, patios), and removal of all lawn clippings, related cuttings, and incidental debris/litter (e.g., newspapers. flyers, bottles). Lawn maintenance should not be ordered if HOA dues cover this service.
  • Initial Grass Cut. Upon notice of a vacancy, an initial grass cut should be performed. An initial grass cut is defined as the first cut for each calendar year prior to termination of the loan or loss payment. Initial grass cuts outside of the time frames provided must be justified.

• Grass Re-Cuts. After the initial cut, grass should be typically re-cut twice a month during the periods listed above for initial cuts in each area. Depending on the level of rainfall in the area, one cut per month may be sufficient, while in other areas, more frequent lawn cuts may be needed.
• Shrub Trimming. Overgrown shrubs or tree branches that pose a hazard or obstruct doorways, public walks, and driveways shall be trimmed or removed.
• Snow Removal. The servicer should maintain a safe and accessible property throughout the winter season. Snow should be removed from the entry, walkway, porch, and driveway following a minimum three-inch accumulation. Servicers must comply with local codes and ordinances regarding the removal of snow and ice.

• Securing In-Ground Pools. Comply with all local ordinances pertaining to swimming pools. Inground pools must be secured, but not drained. Pools must be covered with material in such a way to prevent an individual from accidently falling into the pool.
• Securing Above-Ground Pools. Comply with all local ordinances pertaining to swimming pools. Inground pools must be secured, but not drained. Pools must be covered with material in such a way to prevent an individual from accidently falling into the pool.
• Maintenance of Pools. Servicers must perform monthly maintenance and chemical treatment of operational pools. Servicers must comply with city, county and other local ordinances regarding maintenance of non-operational swimming pools.
• Liability Insurance – Swimming Pools. The Agency will not reimburse servicers for the cost of insurance against potential liability arising from swimming pools. It remains the servicer’s decision on whether to purchase such insurance.
• Receipts for Property and Preservation Expenses. Maintain an accurate audit trail of all expenses incurred during liquidation and REO. Document any repairs made to the custodial or REO properties with before and after photographs of the damage and the subsequent repair work.
• Maintain Property Insurance. Take all actions required in the mortgage clause of all applicable property insurance policies in order to preserve the coverage and its maximum benefits during liquidation. File a claim with the applicable insurance company, if the property sustained damages. Hazard insurance coverage must be provided on all REO through a blanket or individual dwelling policy. The maximum deductible for hazard insurance as an REO is $3,000.00. Flood insurance policies are required for REO when located in a SFHA. The maximum recommended deductible for flood insurance coverage as an REO is $3,000.00.

The lender is responsible for taking reasonable actions to protect the value of the security during the REO marketing period. Actions must be taken to preserve and protect the property to prohibit degradation and protect against any potential injury or death. The lender must carefully document all property management activities and decisions in order to ensure full reimbursement of costs at loss claim.