In some parts of the country, a recovering local economy means the special asset (or problem loan) groups are reducing staff, as loan production groups come back to life. Leaving the special asset group under-staffed could be a mistake if the staff is not able to properly complete basic foreclosure tasks. One basic task is inspecting the property prior to taking title to the property (whether through foreclosure or a deed in lieu of foreclosure [FAQ series for information on deeds in lieu]). Here’s a decision tree that might help you in deciding if an inspection “really” is needed, and a recent example that should energize you to look before you leap (into ownership of the collateral).
Decision tree: verify that your mortgage loan documents give you the right to enter the property, then
- Current Inspection Report: ask yourself this question: “when was the last time that someone looked at every part of the property?” If the answer is “more than a few months” then a current inspection should be a priority
- Court Ordered Entry: if the borrower does not allow you to inspect the property, then investigate (with your lawyer) the available court orders that could give you access to the property (in order to inspect it)
- Extraordinary Situations: of course, there are situations where inspecting the property just is not possible, with the result that -
- Foreclosure is the only option (for example, the lien itself is about to lapse or expire) (I’m having a tough time thinking of other justifications to not inspect)
- Receivership is the better option (for example, you already know of problems and your presence on the property [during an inspection] could cause you problems)
Still not convinced that an inspection should be a top-shelf priority item?
Once Upon a Time . . .
The phone rings and you’re called to meet with City officials at the police precinct office near your “new” apartment project (shortly after you foreclosed on what seemed like just another project).
At the meeting, you’re introduced to the Chief of Police and representatives from the Mayor’s office, the zoning department, the City health department and a lawyer from the local District Attorney’s office. They vaporize you with a list of alarming health and safety issues at the apartments.
The bottom-line message was simple: you have 30 days to show some “progress” on the issues or the City would take enforcement actions.
Their list included the following:
- an active farm growing illegal plants
- sewage flowing into one of the units
- on unit has a 50 foot hole in it, with dirt piled up to the window
- organized dog fighting
As always, it is the basic stuff that jumps up to bite you. (And gets the immediate attention of your insurance group.)
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