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As a result of the vacancy issue, foreclosed and abandoned properties have become more than an unsightly eyesore; these properties represent a significant safety concern to the public. foreclosure process and consider other options, often for personal gain. Costly Insurance As a backdrop to the growing vacancy issue, VPRs are being implemented in communities in staggering numbers. Financial Asset Services has estimated the number of VPR ordinances in effect is just shy of 900, and that list is growing. As a result of these VPRs, which vary from city-to-city and state-to-state, real estate professionals are dealing with a whole new set of challenges. A good example and microcosm of these guidance to servicers (FNMA Lender Letter LL-2012-04 and Freddie Mac Publication 239 issued September 2012) in regards to property registration and payment. Fannie Mae's notice requires servicers to challenges can be found in Chicago. The Windy City's ordinance was implemented in its current version on December 21, 2011 (Section 13-12- 125 of the Municipal Code of Chicago). The local statute requires mortgage holders to pay an initial application fee of $250 per property to Chicago's Building Department. Registration and payment must take place within 30 days of the property becoming vacant, or within 60 days after filing a foreclosure action, whichever occurs last. The mortgage holder must also ensure the property is secured and the yard is free of debris and trash. Registration must be renewed every six months; the fee for renewal is $500 each time. Additionally, the registrant must provide proof of liability insurance. Coverage requirements are $300,000 for residential structures and $1 million for commercial. The penalty for non-compliance can be significant; it can range from $200 to $1,000 per day. These fines can prove very costly for the servicer or its representing agent, increasing with each property managed. On top of having to ensure the city's demands are met, the servicer must also consider direction from Fannie Mae and Freddie Mac. The GSEs recently published 62 abide by the ordinance but to notify the city of Chicago by written communication that payment is being made under protest. The written communication must note that the Federal Housing Finance Agency (FHFA) determined the registration fee does not apply to Fannie Mae or Freddie Mac; therefore, the fee is being paid under protest. Fannie goes on to warn servicers that ordinance has netted the city $619,000 in fines. Industry sources suggest that the Foreclosure Loan Program the city is set to launch will curb the trend. There are other cities that have similar VPR requirements. For example, the city of Las Vegas (Ordinance No. 6169) requires a mortgagee or their representative to inspect the property within 15 calendar days following the occurence of the notice of default. Additionally, the state of Nevada requires designation of a property manager within 10 days following the inspection if the property was found to be vacant. Lastly, in the state of Nevada, effective October 2011, asset management companies must register with the Nevada Real Estate Division. Individuals performing asset management services must also register in order to facilitate an REO assignment. Be Aware VPR requirements vary from state-to-state they will not be reimbursed for any penalties incurred as a result of non-compliance with the Chicago ordinance. Additionally, if the servicer doesn't submit its standard reimbursement requests to the GSE in a timely manner, the servicer will not be reimbursed for those either. Safe and Secure The other key area of consideration is ensuring the property is secured within the time allotted by the ordinance. Industry professionals argue that depending on the timing, this requirement may be paramount to breaking and entering, which puts servicers and their field providers in a precarious position. There are industry arguments that a borrower may have superior right to possession; this consideration can potentially create a legal challenge against the registrant attempting to inspect the property. As with all promulgated acts, the devil is in the details. That is, determining specifically what constitutes an "inspection." The Chicago Tribune reported that the City of Chicago said it fined more than 15 mortgage servicers during the first quarter for not abiding by its vacant building ordinance. So far, the and can range from the reasonable to borderline illegal. In short, from coast-to-coast, there are a number of stringent ordinances that can present significant peril to a property owner, even to the mortgage holder prior to taking possession of the property. Another city that also has similar requirements is Los Angeles (Ordinance 18115). At least they put a cap on administrative penalties ($100,000 per property). The good news for real estate professionals is that some of these municipalites are begining to respond to issues that have surfaced since their respective VPR ordinances were put into place. Only time will tell how this plays out. Until then, it is imperative to stay on top of these ordinances and any legislative proposals. Navigating the murky waters of VPRs can be treacherous at times, and survival is essentially dependent on a company's legislative analytics. Failure to abide by mandated VPR rules can be the death penalty if a company is not careful. Some good, basic advice to keep in mind when working with REOs in the current marketplace is to "be aware, and be resourceful." Jimmy Alvarez is director of risk management for Financial Asset Services, Inc. (FAS). He has been with FAS since 2008 and oversees the firm's licensing and title curative units, which include legislative analytics in addition to his risk management duties.