According to what’s being reporting in the news Deutsche Bank (pronounced Doi-Sha) is having a tough week with negative publicity regarding several business operations. First, the United States Attorney General filed suit against its mortgage division, Mortgage I.T. for $339 million due to shoddy underwriting practices on mortgage loans it originated which led to FHA having to use its insurance program to reimburse investors. Now the City Attorney for Los Angeles has filed suit claiming unspecified amounts for almost 200 properties which were foreclosed and have gone into such disrepair making it one of L.A.’s top Slumlords.
Deutsche Bank is claiming maintaining the properties in question are the responsibility of the mortgage lenders/servicers it used to collect payments and maintain communication with homeowners.
THE BACK STORY OF THE FORECLOSURE PROCESS
Prior to the housing crisis which started in 2007 and is still going on today, many knew very little of the foreclosure process and its effects on neighborhoods. While the practice is common and part of the real estate process, as most property is purchased using a mortgage as the financing instrument, and using the property as collateral, thus foreclosure is merely the legal process the lender/investor uses to reclaim its interest should the borrower default.
IS DEUTSCHE BANK PASSING THE BUCK
Yes and no. As contradicting as that response is there is an entire process that most companies use so such examples of what is happening at Deutsche Bank never become a public eyesore.
· A buyer purchases property from a seller.
· A buyer obtains a loan from a lender so the seller can be paid.
· A lender packages to loan and it is sold on the secondary market (Wall Street) as an investment to Investors (all types of financial institutions and agencies)
· The Investors utilize lenders to service the loan at the consumer level (receives mortgage payments, point of contact for borrower, maintain the property, etc.). Not all lenders service loans as part of their operation but many do, hence Lenders/Servicers.
· The lenders/servicers submit interest payments from the loan to the Investor.
Deutsche Bank’s claim is it’s the lenders responsibility to maintain the properties. Sounds good but the bottom line is Deutsche Bank is the owner of the mortgage, so in most people’s mind, contract or not, it was them who contracted with the lender.
Whatever happens to the City Attorney’s action will be worked out. In the meantime………
ARE FORECLOSED PROPERTIES IN YOUR NEIGHBORHOOD
The bigger focus of this article is to inform you how to educate yourself should your neighborhood have foreclosed properties so the blight does not get out of hand resulting in deplorable conditions.
When a borrower executes his mortgage loan, one of the covenants is the lender’s authority to maintain the property in the event of default. The entire foreclosure process is lengthy and just because a borrower misses payments does not mean the homeowner immediately vacates the property. Usually a lender will not do anything to maintain the property until after the borrower has departed.
PROPERTY PRESERVATION
Most Lenders/Servicers contract with Property Preservation companies (Safeco, FAS, LPS, etc.) to maintain the property (cut the grass, secure the property, turn-off utilities, etc.) and otherwise make periodic visits to insure its condition is satisfactory. The Property Preservation companies in turn contract out with independent companies (mom and pop to larger companies) to actually complete the work.
ONCE A PROPERTY IS IN FORECLOSURE AND THE HOMEOWNER HAS MOVED OUT, most cities require Lenders/Servicers to file paperwork among other things, informing them who the contact person for the property is. This is a critical step.
While the lawsuit in question is pretty specific, you wander how the neighbors did or the City allow the Investor through its Lender/Servicer the condition to be created? Perhaps there was communication and Deutsche allowed the condition to fester. Lawsuits can trigger a host of reactions but you also wander why the City through its maintenance division didn’t simply clean up the property and bill the lender/servicer/investor respectively?
Hopefully you will never have to live in an area where slumlord conditions exist but foreclosures are part of the reality of our landscape as there are numerous vacant properties scattered across the United States. The key is to know who to contact should this ever come to your neighborhood.
If there is no notice posted on the property, your best line of defense is to obtain ownership records from the County Recorder, as ownership information is public and the owner of the property is responsible to maintain the condition whether vacant or not.
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