Code Violation Management

Code Violations Explained:

  • Code violations range from property registration non-compliance, trash in the yard, maintenance issues, over-grown lawns, improvements made without permits, occupancy permits, public nuisance & safety issues, and any identified hazardous conditions at the property.
  • Fines for these violations can range from nominal amounts to fees that exceed $1000.00 per day.
  • Code Violations are not recorded as liens and therefor are not a matter of a public records title search. This creates a greater challenge for those processing REO assets.
  • The unrecorded nature of code violations opens multiple doors to risk, exposure, and liability.

Adaco's Code Violation Management product offers a comprehensive solution to manage violations issued by both municipalities and HOA's. We manage all violations from the time of receipt to the time the violation has been resolved.

Features of the service include:

Single Point of Contact accountability through a highly trained and dedicated Code Violation Specialist

We offer aggressive negotiation of fines and liens to potentially save our clients thousands of dollars in fees and penalties

Adaco has an experienced team of dedicated staff members specifically trained in Code Violation Management and Resolution

Financial Risk Exposure

Code violations create a number of financial risk and potential collateral loss issues for investors, servicers, and REO holders:

  • Accumulation of daily code violation fees
  • Registration non-compliance daily penalties
  • Delay in REO closings & holding costs
  • Loss of potential buyers
  • Cost of mounting repairs and maintenance
  • Demolition risk and total loss of collateral
  • Cost of litigation action from local municipalities
  • All of which lead to closing delays and increased asset loss severity.

Crime and Safety Exposure

Many states have public nuisance laws in place that require vacant property to adhere to certain conditions. In some cases, a vacant property owner's violation of such laws makes them automatically liable for any injury that occurs to trespassers.

  • One of the number one issues local governments face with is the increase of crime activity associated with vacant properties.
  • What happens the first time a serious safety issue or crime hits the local press and the property has several code violation notifications with no action by the investor, lender, servicer, asset management company, or listing agent?
  • Exposure to negative press increases substantially with vacant properties and non-resolution of code violations.

Who Can be Held Liable

If unrecorded municipal code violations are not proactively addressed, then who is responsible for the potential exposure and mitigation of code violation issues before or after transfer of title?

  • Mortgagee / Investors
  • Loan Servicers
  • Asset Management Companies
  • REO Brokers (Listing or Selling)
  • Title Companies
  • Closing or Escrow Companies

Unrecorded municipal code violation fines and liens create potential negative equity positions. HOA organizations, especially in super lien states, create potential for negative equity or collateral loss.

Default Loan Servicing: Foreclosure - The process to determine foreclosure sale bids and the decision to "foreclosure or not to foreclosure" does not take into consideration possible code violation liens, HOA violations, and negative equity positions.

Default Loan Servicing: Loss Mitigation - The loan modification process requires borrowers to be able to qualify for lower monthly payments which include real estate taxes. Servicers are required to pay real estate taxes on vacant assets and thus must carry these expenses through the asset disposition process.

Default Loan Servicing: Short Sales / Deed in Lieu - Short Sale and Deed in Lieu transactions have inherent risk with unrecorded fines and liens, as well as potential HOA liens. These also pose a loss severity risk if not proactively disclosed in the negotiation process.

Default Loan Servicing: REO Management - REO company responsibilities include managing asset risk, minimizing loss severity, and improving REO timelines. Proactive management of code violations lessens REO loss severity.

Property Preservation Firms - Loan servicers often request field service organizations to complete property registration services. Turnkey registration compliance (full understanding of statutes and specific municipality requirements) and document processing (ensuring all support documentation such as NOD, deeds, lis pendens, POA, hazard insurance is provided) is usually beyond the scope of a field service organization's expertise.

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