Property preservation work can be a great way to round out your handyman services business and hedge against economic downturns. But entering a new line of work may seem overwhelming at first. Here are a few key concepts to understand about the industry so you’re ready to dive in and feel set up for success.
Property Preservation and the Economy
Unlike other industries, property preservation doesn’t require ideal economic conditions for you to have opportunities. As a property preservation vendor, you could have the opportunity to build your client base and earn revenue even if the economy takes a negative turn. When the economy is strong, we typically see a lot of new single-family, multifamily and commercial construction and maintenance needs. Conversely, when it dips into a recession, builders may pull back. But often that’s when volume in the default mortgage servicing world increases—and along with it the demand for services from different trades that you can help meet.
Property Preservation Services to Know
There are a variety of property preservation services to get familiar with but the common overall goal for them is the same: to ensure a property is secure, well-maintained and cared for when vacant pending foreclosure sale and disposition to a new homeowner. Standard property preservation services include changing locks on a property, debris removal, lawn maintenance, snow removal and winterization. Additional services may also be requested, like insurance claim repairs, pool securing and maintenance, discoloration remediation, roof repair and eviction services.
An allowable is essentially the maximum amount a mortgage company’s pricing guidelines say they will reimburse for property preservation work. A maximum rate is set per task, and it’s important that mortgage servicers complete only the work that has been agreed upon at the allowed price.
A default is a breach of non-performance of the terms of a note or mortgage, or failure to do what is required by law or contract. Foreclosure, which is the process by which the bank/lender retakes ownership of a home due to non-payment by the owner, is different depending on the type of loan the property is under. Initiation of the foreclosure process typically follows these actions:
- For conventional loans, the bank holding the mortgage typically initiates foreclosure proceedings within 45 days of the first missed payment, with the goal of liquidating the asset so they can market the property and sell it quickly.
- For FHA loans, the U.S. Department of Housing and Urban Development (HUD) sets the time frame (known as the First Legal Deadline), and foreclosure cannot begin until the borrower has missed three full payments or has abandoned the property. Additionally, it must be initiated within six months from the date of default. Each state has prescribed reasonable diligence timeframes that govern how long a foreclosure should take.
- For VA loans, the U.S. Department of Veterans Affairs (VA) sends the loan servicer a notice called an “interest cut” letter advising them to begin the foreclosure process and to have it completed by a specified date. If the foreclosure process isn’t finished by the established deadline, the servicer is unable to obtain any further reimbursement from the investor beyond the cut date.
The Importance of Understanding Work Orders
Work orders are the lifeblood of a property preservation vendor, and paying attention to the details is key to not only ensuring you complete the work as directed but also to protecting yourself and your business. Remember that you aren’t required to take on every work order that comes your way, but if you do, you’ll want to be sure you have a thorough understanding of exactly what is required—what your responsibilities are and the timeline you’ll need to complete the work in.
Why is the FHA conveyance deadline so critical? When this deadline is missed, no expenses are claimable thereafter—not even something as minor as a grass cut—so a delay in putting a property into conveyance condition and completing the work order in a timely manner could result in future expenses.
The Role of HUD
The Federal Housing Administration (FHA) is a department that operates under Housing and Urban Development, typically referred to as HUD. When an FHA-insured mortgage is in default, the property is conveyed to HUD, and they put it on the market. But before it can be sold, certain conditions must be met to get the property into conveyance condition via property preservation services.
The HUD Single-Family Housing Policy Handbook 4000.1
Handbook 4000.1 is where all of the regulations for servicing FHA loans can be found. It’s a great resource to review and help you understand how the property preservation process ties together. You can visit www.HUD.gov for:
- A fully searchable online version of the document in the FHA’s Online Housing Policy Library or
- A PDF portable version
For quick reference when using the handbook, the information related to property preservation and default servicing can be found in the sections listed below. You can also reference it for filing a claim and review the full list of allowables via an appendix.
Chapter lll. Servicing and Loss Mitigation
A. Title ll Insured Housing Programs Forward Mortgages
2. Default Servicing
Chapter IV. Claims and Disposition
A. Title ll Claims
2. Claim Types
a. Claim Type 01 – Conveyances
Chapter V. Quality Control, Oversight and Compliance
Appendix 6.0 – Property Preservation Allowances and Schedules
Get Started in Property Preservation
Property preservation is a specialized industry, but understanding these key concepts will help you get a better feel for the industry so you can expand your business. You can also check out our handy Property Preservation Glossary to learn more about the language of the industry. And if you’re looking to build your portfolio in property preservation, consider working with the MCS team.