Timely and effective communication among all parties involved in REO Asset Management can help servicers reduce risk and minimize losses.
by USREOP Member Fred Law of Utah
Just as location, location, location is the primary factor that drives the interest and, sometimes, the cost of a house, the most important factor in servicing real estate owned (REO) properties is communication, communication, communication. In order to develop a successful relationship, asset managers and real estate agents must become acquainted with how to better contact one another on standard tasks and urgent matters.
Every asset manager conducts business differently, so comparing one asset manager you have worked with in the past with another may not be the best practice. While many asset managers prefer to communicate via technology platforms used by their company, every asset manager communicates a little differently. The trick to communicating well is discovering what works best with your particular asset manager. Some use email, while others will prefer talking on the telephone for everything, not just for the urgent issues.
The following is an example of how a communications breakdown can cause unnecessary problems and even create potentially life-threatening situations:
An agent received an assignment for a new asset. She completed the occupancy check and found the home was vacant. The electricity and the heat were on at the time; however, she did not switch the utilities into her name or the asset-owning company’s name once she found the home to be vacant. She instead proceeded with completing the notification and performed the broker price opinion (BPO). Upon returning to the property after several days, she discovered that the basement was flooded with more than three feet of water. The home was in an area of the country that experiences cold winters, and the flood happened as a result of the water lines freezing and bursting. The water leaked into the basement, causing significant damage. Further, the flood created electrical issues, which the agent tried to address by going into the basement. Before she went there to find the issue, she fortunately remembered to turn off the electricity.
This real scenario could have been completely avoided had the agent communicated the situation clearly to the REO owner and/or management company. First, she should have followed procedure from the bank and had the utilities switched over because, after her initial inspection, the previous occupant had the utilities turned off.
Second, knowing she lived in an area that experiences cold weather, she should have visited the property when she saw a cold front coming or contacted the property management company to address the situation by, for example, leaving a faucet dripping to prevent the pipes from bursting.
Third, she should have contacted the field services company regarding the burst water lines. Safety is the first order of business to protect the property and eliminate liability if someone enters the home.
Lastly, the home value was reduced due to the damage – and expensive repairs were necessary to make the home marketable again. The total cost to the client was $47,500. This included repairs for the walls, electrical systems, paint, flooring and insulation, as well as installation of a new furnace, a new water heater, bathroom fixtures and a vanity. The situation could have been eliminated with proper communication and notification.
The biggest challenge in communication is clarity. The best way to navigate the communication maze in servicing is to understand the ground rules and follow them. Ascertaining the information given about the property and taking into account all possible scenarios will oftentimes thwart any potential problems that could arise. When an agent communicates such scenarios to an asset manager, it shows that the agent is thinking ahead and is on top of the situation. The main point is, when it comes to an assignment or task involving a property, the information may seem clear to one person but unclear to another.
Another communications obstacle is timing. After an assignment or task is given, failure to respond in a timely fashion could cause an issue. Thus, the timing of communication can affect a relationship just as much as clarity of communication can.
There are several other barriers to clear communication in the REO process that should be considered. The following are a few areas that could present barriers to clear communications:
- Valuations: All of the characteristics and factors of the asset need to be listed. Recent sales in the area (comparables) should be included in the valuation. It is vital for real estate professionals to provide information on whether the comparables are in the same time of development. Even within a mile, sometimes crossing to a different subdivision could change the value of the asset. One the value of the asset. One subdivision could be priced higher or lower yet be in the same neighborhood. The agent must complete a recommendation of value in the current market and help asset managers understand if they are in an appreciating or depreciating market.
- Regulations: There are several regulatory changes that asset managers should be made aware of, including those from the Consumer Financial Protection Bureau. In addition to those large regulations, asset managers need to know if the property is part of a homeowners association (HOA) and if the fees are past due.
- Compliance: Agents can help asset managers determine whether an asset is in compliance with local laws and ordinances. If there is an HOA involved with the property, factors such as whether the grass is cut would fall into place. City ordinances, such as ones that prohibit trash or old furniture from being seen from the street or from a neighbor’s property, could also be a problem. Other possible problems include broken windows or property-line disputes. All of these compliance factors can negatively affect the value of the property.
- Location: Having the correct information about the location of a property can make the difference between a property that sells quickly and one that languishes. Whether a property is close to a busy road, is next to a commercial building or is near an airport are all factors that will affect the value. On the other hand, if the property is in a prime school district or a historical neighborhood, this will also affect the value of the property.
- Title issues: The agent needs to always get the name of the title company handling the closing of the property. In some states, attorneys are performing the work needed for the title and closings. Once the asset is assigned, a title policy must be ordered and reviewed for the discovery of any issues and/or liens that may be recorded on the property. Foreclosure does wipe away many items – but not everything. A careful review is important to avoid any issues that will affect the closing of the property.
REO properties need to be in good condition in order to be effectively marketed. This means managers and agents need to be on the same page regarding how to present the property. Knowing if the property is more of an investment property or a fixer-upper will determine how to market to the best potential buyers. There will not be a successful outcome when a home is marketed incorrectly.
For example, if the property will not qualify for standard financing because of problems with its condition, it is best to market to investors or buyers who have alternative financing available. Many buyers and Realtors are not comfortable enough with alternative financing to make that an option, so ultimately, they move on to another property. This can happen from something as simple as a faulty water heater. Most banks will be open to repair requests to ensure the property is being sold in the right way. The key is making sure everyone in the process is familiar with the options available for the property and is comfortable presenting them.
Homes must also be safe for showings. Agents and asset managers must be clear on how to identify and eliminate any risks that could prevent the sale of a property. Agents are the eyes of the asset managers and must be proactive in communicating about all aspects of the property.
As with any relationship, clear communication is the key to success. Knowing when and what to communicate will lead to better-informed parties and, ultimately, faster sales.
Fred Law is a licensed real estate agent and the owner of Law Real Estate in Salt Lake City. He is a default specialist and a member of US REO Partners, a group of brokers, agents and attorneys nationwide who specialize in default properties. He can be reached at email@example.com.
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