The Services You Are Paying For

S.I.R.s series of articles regarding actual services performed that have been recorded by third party contractors and inspectors. In this second article, we are highlighting what has become the "industry standard" of securing services. Originally, we asked contractors and inspectors nationwide to document property conditions, in particular the doors and knoblocks, of properties on their daily rounds. We specifically asked for photos of what they perceived to be poor quality work. The response was so overwhelming and many submissions included a note that "this is just a sample of what I am finding here". Due to this type of response, we believe that there is not much "quality" work being performed. Rather, we believe the following documentation is truly the norm. Therefore, we are titling this article:

The Industry Standard of Securing and Preservation

written by Chuck Smith, CEO/ Business Consultant SIRs 10-01-2002

Standard "-adj. Of average but acceptable quality." Webster II New Riverside University Dictionary

There is a standard which preservation contractors are to abide by. It is published by the United States Department of Housing and Urban Development, or most frequently referred to as HUD. Other loan guarantors, such as the United States Department of Veteran's Affairs, Fannie Mae, Freddie Mac, etc., have guidelines as well. However, HUD guidelines are considered to be the foremost standard and most all conventional loan issuances request that HUD guidelines be used when securing and preservation services are requested. HUD recently published Mortgagee Letter 2002-10 which updated the guidelines. 2002-10 is more involved than previous guidelines. 2002-10 requires additional services be rendered to consider a property secured and protected properly. According to Richard Dunne of HUD, the additional specifications of 2002-10 were in part due to the conditions HUD was finding in properties that were "preserved" under the prior guidelines of Mortgagee Letter 97-31 which 2002-10 supercedes.

Since 2002-10 publication in May 2002, confusion has abounded in the industry regarding exactly what services are to be performed and what fees are to be charged for those services. Richard Dunne explained that the securing fee, referred to as the One-Time Securing Fee or OTS, was a maximum allowed amount and not a flat fee. Dunne further explained that "fair market rates" were to be charged for each service performed in securing a HUD property. To expand this, it can be stated that a lock change on one door may involve the fee for a knoblock, a deadbolt and possibly an access fee (one does have to gain access to change locks!). This could cost up to $150 or more depending on area, who provides the service, etc. The cost will also depend on what nationwide servicer is contracted to hire the local contractor. Some of the nationwide servicers are demanding that the old Mortgagee Letter 97-31 fees be charged - unfortunately those fees are no longer available from HUD which means the local contractor would have to rely on their client to stipulate what that fee was. Some nationwide servicers are turning a deaf ear to Richard Dunne's clarifications and they are charging the OTS as a flat fee - regardless of what the local contractor is charging! This of course could amount to fraud on the lender and could ultimately amount to defrauding the guarantor and possibly the American Taxpayer.

All of this makes little to no difference - if the services are being performed according to guidelines. The problem of course is that the services being performed are not to guidelines and are sub-standard to say the least. A "professional" preservation mechanic will take sensitive measures to gain access to a property in order to change the locks and complete other requested preservation work. A dedication to "preserving" the lender's investment in the property is the first concern of those preservation mechanics that know their business. Contrary to the belief that there is only one way to gain access - by kicking in a door - the "professional" preservation mechanic will pick a lock, drill out a lock, gain access through an un-locked window or employ other means to gain entry that causes no damage to the property. A valid measure of a "professional" preservation mechanic's work is that the only indication of his having been to a property will be the sign in the window stating that he has been to the property and changed locks. Unfortunately, what we are finding nationwide is that there is every sign of "securing" except the sign in the window. Following is the photographic documentation of the services being performed by those less qualified to do so - services you, (the lender, the guarantor, the taxpayer) are paying for.

HUD Specification	What you are paying for	"Industry Standard" Explanation
"Windows and doors must be secured to prevent unauthorized entry and to protect against weather damage."		Compliance with request to "change lock" by tearing out deadbolt and covering hole with a winterization notice. "Presto" lock installed.
		Compliance with request to "change lock" by removing a previously installed coded knoblock and installing a padlock.
		Compliance with request to "change locks" by removing a previously installed coded knoblock and installing a padlock on a steel door.
"Adequate amounts of anti-freeze are to be placed in all fixture traps including toilet tanks and bowls."		Compliance with the request to "put antifreeze in all toilets" by adding automobile antifreeze to tank only.
		A "jimmy bar" is a "piece of wood" that you put in a sliding glass door track or window track so the door or window can't open. Compliance by installing "piece of wood".
"The disconnected feed pipe leading from the main water valve must be plugged."		Compliance with request to "remove water meter". As the supply line was not capped per guides, a bucket was placed to catch the water - this only works until the bucket is full.
		Compliance with request to "install hand rail". This handrail was constructed using exactly 3 screws and doubtfully would support any average adult. It also lacks child guards.
		Compliance with request to "install hand rail". This handrail doubtfully would support an average adult and also lacks child guards.
		Compliance with request to "change locks". The knoblock was removed, the padlock installed on the wrong side of the door. The door is not secure.
		Gaining access these days is a request to kick in the door which damages the jam. Compliance with request to "change locks" is met but property is damaged and not secure. Deadbolt area covered with securing notice.
"Clean-outs...must include the removal and proper disposal of debris..."		Compliance with request to "remove debris". This particular "habit" of removing debris to the curb rather than a disposal facility is most likely the single largest reason for service liens placed by cities and townships.
These next photos are our favorite samples of one property.
"Tags, labels, or warning signs must be affixed to all items winterized and must include the date of winterization and the name, address, and telephone number of the firm that performed the work."		Compliance with requirement to post notification of winterization process completed at property. This is actually correct!
"In either case, the water meter must be disconnected and left in the property unless the City or County ordinance requires return of the meter to the water company to eliminate further water charges."		The water meter is only partially disconnected but the water was turned off at the curb by the city.
"The winterization process must include a thorough and complete draining of all plumbing and heating systems unless otherwise directed by the City/State variation."		Unfortunately - it exemplifies current industry practices of not completing the job to spec. Here is water flowing freely from the exterior faucet.
		Again, water flowing freely from the interior faucet. The lines were not pressurized and blown air dry!

Some Reasons Why There are Two Standards - "Industry" Standards" and "To Spec" Standards Every Industry is fraught with two or more classifications of "quality". The word "quality" itself can refer to either "type/grade/level" or "excellence". When you refer to the quality of food served at a fast food restaurant compared to the quality of food served at a 5 star restaurant, you are referring to type/grade/level of quality. In the world of materials and workmanship, the word "quality" generally refers to the excellence - such as quality fabrics/ clothing, homes, etc. The craftsmanship, material, skill in creating and completing a product range from the "unskilled/unknowledgeable" do-it-yourself, to "read a bit/learned a bit" do-it-yourself, all the way through to "master" who has had years of formal training, education and experience. When it comes to preservation services, there are also several levels of quality based on training, education and experience. The "preservation mechanic" title is ill defined and being a "self-employed" entity, has no criteria of bestowal. Unlike a loan officer who is hired in by a mortgage broker or bank under strict federal/state/local regulation and then trained; a preservation mechanic is often self-proclaimed and hired by a servicer states away. Supervision is non-existent. Face-to-face interviews are non-existent. Portfolios are non-existent. Brochures are rare. Most "preservation mechanics" who are self-employed business entities are still providing "resumes" to their prospective clients! This atmosphere of "behave like an employee/ be treated as a business" can attract people with "employee mentalities" who then may drop the ball when treated as a business. No supervisor around, no clock to punch, no local/state/federal regulated rules to hold accountability in check. A reasonable person would not allow just any person to enter their home to replace a leaky kitchen faucet without first ensuring - through references, reputation, the Better Business Bureau, or other means - that the job will be done correctly. Yet, this is precisely what this industry does to the properties under the "care" of the foreclosure departments. Before and after photos are the sole means of ensuring the work was done correctly. Photos taken by the person completing the work are no more likely to reveal the flaws of the workman any more an advertising agent would flash a picture of the real "super burger" when promoting Burger Haven's restaurants! If one expects payment - the photos will look good. In comparison, a homeowner is there to make appropriate complaints if the work is not done correctly. The foreclosure department may never know the work was not done correctly because they may rely on 1) the mechanic to report on his own work 2) the same servicer that hired the mechanic to report on the result or 3) not even check or care - it is not their property. In this industry we are providing services to an unknown entity and the door is wide open to those without any training or license. There are no requirements or request for proof of same. The highest "required" standard that a preservation mechanic must adhere to is the "standard" by which he/she can fall asleep with at night. Is it wise to leave the protection of your multi-billion dollar investments to such standards? What Can Be Done? In this industry, services are generally hired not by who is more qualified to complete them but rather by the fee being charged. We all want more for our buck but you're not about to get a ground chuck hamburger when all you request and pay for is ground beef. If you want "to spec" services, expect to pay "to spec" prices and request the work to be "to spec". If you receive a photo that shows just the knoblock or padlock - and not the full door - ask why. Discounts are the driving force of services being hired. Some servicers just cannot survive on a standard 10 to 15% discount off the "spec" prices. Yet, this is all that a knowledgeable preservation mechanic will give, if he will give a discount at all. When the servicer wants 20, 30, 40 or 50% discount, he has to hire the person that has little to no knowledge of the industry and little to no knowledge on how to perform the services he must provide. Those mechanics that do know how to perform services correctly but still offer a large discount to keep the client may take every possible short-cut to get the job done and still comply with the request "as written". When shopping for a servicer ask what discount they require of their contractors. Randomly request samples of the direct billing from the contractor of a specific property after the work has been completed to verify the discount and the fees that were charged. Reject photos that are taken too far away to reveal necessary detail (as in the handrails). Rather than asking for "before and after" photos, ask for full property documentation after the work is completed - to show all rooms and all angles (typically this will be about 30 photos). Do not request "free photos" - contractors will only hide the photo fees in other services by not completing the service fully or charging higher fees. (There will be extra debris/ larger windows/ larger lot size etc.) Question City Citations - Many major cities (and smaller townships) are picking up the slack of the preservation mechanic and placing service liens on properties. A quick history search of the property's portfolio should reveal if a service lien was placed after a preservation mechanic supposedly completed the same service. Check the property portfolio for discrepancy if the property is guaranteed by HUD, VA or other, and that guarantor is rejecting properties for 1) improper winterization 2) debris or personal property on site 3) not being secure 4) damages not reported Question inconsistent inspection reports - if you know a property is vacant, why would an inspector report the property as occupied if the appropriate securing notifications were posted in the front window as they should be? Preservation Mechanics are not posting notice on properties. If there are any personal property items on site or the electric has been restored then the inspector will most likely report the property as occupied. It is the preservation mechanics job to ensure appropriate postings are in place so that the inspector can properly check for security and other issues on the vacant properties. Be willing to pay for the services you want performed. The better preservation mechanics and inspectors are aware of guarantor guidelines and, in most instances, willingly charge only the reimbursable rates. For Conventional Loans, the lender is allowed to add the fees of inspection and preservation services to the debt and the better preservation mechanics and inspectors usually charge the same rates for Conventional loan services as they do for HUD or VA guaranteed loan services. 9-9-04 Addendum to Article In January of 2004 SIRs released the Property Preservation Certification Exams. Hiring or requiring your servicer to hire a Certified Property Preservation Specialist can assist you in controlling the losses you might otherwise experience as a result of an unknown / untrained property preservation mechanic being utilized for the protection of your assets. Look for these seals of Certification when seeking a property preservation vendor.


Discount - the fee paid to the servicer by the mechanic for requesting the mechanic's services. This is the servicing companies income. The lender is charged xx for a particular service. The mechanic charges xx less discount. The servicer keeps the difference (or discount) as payment for having contracted with the lender and hired the mechanic. When inspections are the service, the lender is charged xx for the inspection, the inspector is paid x, the servicer keeps the difference. Back		Read Other Articles on SIRS Mold: Myth and Madness Freeze Damages found US Nationwide The Problem with HUD's Requirement to Clean Toilets prior to Winterization - (warning may be graphically offensive) Recap of HUD Meeting in Washington, D.C. April 25th, 2007 Available Courtesy of FEMA Mold and Mildew: Cleaning Up Your Flood-Damaged Home if you would like a copy of the above information to save, it is available in Adobe Click Here