Once a bank forecloses on a property, the usual objective is to sell the property as quickly as possible. There is greater exposure to loss on a foreclosed property than a bank occupied property. Be vigilant in your responsibility to foreclosed properties that are in your possession. During the time that the property is part of the bank’s real estate owned portfolio, there are actionable steps a bank can take to protect foreclosed properties.
Secure and maintain the property
Upon taking possession of the property, a bank’s first step is to properly secure the property. As vacant properties are prime targets for theft and vandalism, take the following recommended precautions:
- Re-key all locks.
- Padlock all gates that provide access to the property.
- Thoroughly clean the property’s interior and clear the exterior of any debris. Complete necessary repairs and perform ongoing maintenance, such as grass cutting, snow removal, etc.
- Place interior and exterior lights on timers to give the appearance of occupancy.
- Keep drapes and blinds closed.
- Ensure smoke detectors are present and functioning. Replace batteries or maintain the power supply in case they are connected to the electrical system.
- Be sure a commercial property’s sprinkler system is in working order.
- Properly vet contractors hired to maintain foreclosed properties. Request a certificate of insurance that lists (1) adequate general liability limits (ideally equal to the bank’s limits) and (2) the bank as an additional insured on the GL policy.
Winterization can prevent damage
In most U.S. climate zones, it’s important to prepare properties for cold weather to prevent freeze damage, especially if vacant throughout the winter months. Frozen water lines and plumbing fixtures can cause severe and costly damage if they burst.
- Completely turn off water at the main supply point.
- Open all faucets; drain all water lines.
- Drain toilets, water heaters and expansion tanks. Before draining the water heater or expansion tank, REMEMBER TO SHUT OFF THE GAS OR ELECTRIC SUPPLY.
- Set thermostats to adequate levels to keep inside temperatures above freezing and to keep things dry.
- Prevent evaporation of the water in a toilet’s trap by raising the toilet lid and seat, and covering the bowl with plastic wrap. It’s also a good idea to add antifreeze to all sink drains, traps and toilets. Water evaporation may cause noxious and/or volatile sewer gases, such as methane, carbon dioxide, sulfur dioxide or nitrous oxide, to waft into the sealed property, thereby setting up a potential flammable or even explosive situation.
- Lessen the chance of burst pipes by properly insulating them, such as with polyethylene, neoprene foam or fiberglass wrap.
A winterization may need to be reversed in order to perform sales inspections, repairs, or if a real estate agent requests it during mild weather to improve a home’s marketability. In these cases, utilities may need to be turned on or functioning, and water restored to the plumbing system with the entire system flushed of any antifreeze. Once the task is completed, and if the weather is still cold/freezing, be sure to re-winterize the property.
Be a good neighbor
Depending upon the situation and the area, it may be prudent to notify neighbors that a property is not occupied and provide a contact name and number in case they become aware of issues involving the property. While a bank should regularly check a vacant property, neighbors may be the first to notice suspicious activity, unclaimed packages/mail, newspaper delivery, etc., that require immediate attention.
Contact the local police and fire departments and alert them of vacant residences to help prevent theft and vandalism. Squatters look for vacant buildings for temporary residence while burglars see them as perfect opportunities to steal valuable metal, such as copper and/or steel tubing, appliances and other items. In one extreme example, thieves in Milwaukee tried to run off with a stolen furnace. Oftentimes though, there’s little risk of being caught. Police will know to monitor the property for the presence of thieves or squatters, and regularly patrol areas when requested. Notifying the fire department alerts them of any potential situations if there ever is a fire or explosion on the property.
Dirk Hanket is ABA Insurance Services’ P&C Product Manager. For information about force placed/foreclosed property coverage or our full suite of Property & Casualty insurance, Dirk can be reached at 800-274-5222 or firstname.lastname@example.org.