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Essential Management Strategies for Vacant Bank-Owned, REO, and Foreclosed Properties 

Vacant bank-owned properties in Chicago’s bustling cityscape present a unique challenge. These unoccupied spaces can become targets for vandalism, squatting, and rapid deterioration, leading to depreciated property values and community blight. Property management firms play a crucial role in safeguarding these assets, ensuring they remain secure and well-maintained. This article outlines essential strategies for property management companies to protect and preserve Chicago’s vacant properties effectively.

Conduct Regular Inspections 

Regular inspections are the first line of defense in foreclosed property preservation. They serve as a proactive measure to identify and address issues before they escalate. The spillover effects of such properties are well-documented, with research linking them to reduced property values, increased crime, and higher costs for municipal governments.

According to the U.S. Department of Housing and Urban Development (HUD), compelling evidence underscores the critical need for regular inspections of vacant properties. The HUD points to studies that have quantified the negative impact of foreclosed, vacant, and abandoned properties on communities:

Impact on Nearby Home Sales

  • Studies have shown that foreclosures can decrease the sales prices of nearby homes by 0.9 to 8.7 percent.
  • Vacant bank-owned properties have a more pronounced effect on their immediate surroundings than foreclosures do, with a study in Columbus, Ohio, finding that being within 500 feet of a vacant property can depress the sale price of a nondistressed home by 1.7 to 2.1 percent.
  • The longer a property remains vacant, the greater its negative impact on surrounding property values. After three years of abandonment, the effects extend up to 1,500 feet.

Crime and Safety Concerns

  • The “broken windows theory” suggests that signs of abandonment encourage further disorder and crime. A study in Pittsburgh found that after a property becomes vacant, the rate of violent crime within 250 feet of the property is 15 percent higher.
  • In Philadelphia, vacant properties were found to be the strongest predictor of assault risk, even when controlling for other factors.

These findings highlight the importance of regular inspections for the maintenance of vacant bank-owned properties and the surrounding community. Industry best practices suggest that inspections should occur bi-weekly, allowing for a timely response to any arising concerns. A comprehensive inspection checklist should include assessments of structural integrity, plumbing, electrical systems, and security features.

By ensuring that vacant and abandoned properties are regularly inspected and maintained, property management firms can help prevent the decline in property values and combat the rise in crime associated with these properties.

Securing the Properties 

Securing a property is paramount to prevent unauthorized entry and potential damage. This involves reinforcing all entry points, including doors, windows, and any other access areas. Advanced security systems, such as surveillance cameras and alarm systems, act as deterrents and monitoring tools. Additionally, employing security personnel can provide a physical presence that further discourages trespassing.

Implementing robust security measures has numerous benefits that have significant implications for property owners, managers, and the community at large: 

  • Preventing Vandalism and Theft: Unsecured properties are prime targets for vandals and thieves. By securing these properties, owners can prevent damage and loss of valuable materials, which can be costly to repair and replace.
  • Mitigating Liability Risks: Vacant properties can pose liability risks if unauthorized individuals enter and injure themselves. Proper security measures can protect owners from potential legal liabilities.
  • Preserving Property Value: Unsecured property can deteriorate quickly, decreasing its overall value. Security measures help maintain the property’s condition, ensuring it retains its value over time.
  • Deterring Unauthorized Occupation: Robust security can prevent squatters and trespassers from occupying the property, which can lead to further damage and legal complications in removing them (more information about this in the following section).
  • Maintaining Community Safety: A well-secured property contributes to the safety of the surrounding community by deterring criminal activities and maintaining the area’s aesthetics.

Squatter Prevention

What Every Property Manager Needs to Know About Squatters 

As a property manager or real estate investor, dealing with squatters is expensive and frustrating. Understanding how squatters operate and the actions to take when faced with squatters is essential. DAWGS has published an article (available here) that helps property managers better understand the risks and costs associated with squatters, such as:

  • Property damage: Squatters may cause damage to the property while occupying it. This could include vandalism, fire, theft, or neglecting maintenance, leading to further deterioration of the property. Property managers may need to invest in repairs or renovations to restore the property to its original condition.
  • Legal fees: Evicting squatters requires legal action, which can result in significant legal fees. Property managers may need an attorney to navigate the eviction process and ensure compliance with local laws and regulations. These legal fees can add up, especially if the eviction process becomes prolonged or complicated.
  • Lost rental income: Squatters occupying a property can prevent property managers from renting it out to legitimate tenants, resulting in lost rental income. The longer the squatters remain, the greater the financial impact on the property owner.
  • Cost of eviction: Evicting squatters can be a time-consuming and costly process. Property managers may need to pay for court fees, filing fees, and other expenses associated with the eviction process. Additionally, if the squatters refuse to leave voluntarily, property managers may need to hire a professional eviction service, which can further increase costs.
  • Property devaluation: The presence of squatters can negatively impact a property’s value. The history of squatters may deter Potential buyers or tenants, leading to decreased demand and lower property values. Property managers may need to invest in marketing efforts or property rehabilitation to overcome this stigma and attract new occupants.
  • Potential legal disputes: Squatters may attempt to claim legal rights to the property or file lawsuits against property managers, alleging wrongful eviction or violations of their rights. These legal disputes can result in additional legal fees and potential damages awarded to the squatters if the property manager is found to have violated the law.

Property managers must be prepared for these potential risks and costs associated with squatters. Implementing preventive measures, such as regular property inspections, maintaining strong security systems, and understanding local laws can help mitigate these risks and minimize the financial impact of dealing with squatters.

Maintaining the Properties 

Maintenance is key to preserving the property’s value and appeal. Regular cleaning, landscaping, and yard upkeep contribute to a property’s aesthetic and prevent the accumulation of waste and debris. Prompt repairs and renovations address any damages and maintain the property in a market-ready state, ensuring it can be quickly transitioned to new occupants when necessary.

Maintaining a property is not just about fixing what’s broken; it’s about regular care that prevents damage and preserves the property’s value. Here are specific examples and tasks that are essential for property upkeep:

Regular Cleaning and Maintenance:

  • Interior: Regular dusting, vacuuming, and cleaning of surfaces to prevent the accumulation of dirt and grime.
  • Exterior: Power washing the siding, cleaning gutters, and ensuring windows are clear and intact.

Landscaping and Yard Upkeep:

  • Spring: Planting summer-blooming bulbs after the last frost and fertilizing the lawn.
  • Summer: Mowing the lawn regularly, watering plants, and pruning summer-flowering shrubs.
  • Fall: Raking leaves, preparing flower beds, and performing pest and weed control.
  • Winter: General landscape cleanup, including leaf removal, shrub trimming, and mulch installation.

Repairs and Renovations:

  • Structural: Fixing any damages to the roof, walls, or foundation to prevent water infiltration and structural issues.
  • Decorative: Repainting walls, replacing worn-out flooring, and updating fixtures to maintain a modern appearance.

Addressing Legal Issues 

Navigating the legal landscape is essential for property management firms. The City of Chicago has established a series of ordinances that specifically address the nuances of managing foreclosed or bank-owned properties. These laws are designed to uphold community standards, protect public safety, and maintain the aesthetic integrity of neighborhoods. Here are some key ordinances that property management firms must navigate:

Vacant Buildings

Chicago’s Municipal Code sets minimum standards for maintaining and registering vacant buildings. When a structure becomes vacant, property owners are responsible for compliance. The municipal code requires liability insurance, owner registration within 30 days of vacancy, and mortgagee obligations for structures with defaulted mortgages.

Vacant Building Mortgagee Requirements

Chicago has strict regulations for vacant property owners. Buildings left unoccupied for over 30 days with mortgage payments 60 days overdue must be registered, secured, and well-maintained. Non-compliance carries significant penalties, promoting community welfare.

Vacant Building De-Registration Process

The Vacant Building De-Registration Process in Chicago applies to buildings registered under the Vacant Buildings Ordinance. De-registration is allowed only for reoccupation, demolition, sale, or release of lien. The process involves automatic inactivation through the Vacant Building website, subject to payment of unpaid fees and no active court case for the property. This streamlined procedure lets property owners manage changes in occupancy, demolition, sale, or lien status efficiently and comply with the ordinance.

You may also be interested in: CHICAGO, IL – Vacant Property Ordinances For Investors, Rehabbers, And Realtors.

A Summary of Best Practices

Vacant (Foreclosed) Property Security Best Practices for Property Management Firms

  1. Use steel guards instead of plywood to prevent break-ins.
  2. Conduct regular property inspections to promptly identify and address security risks, such as forced entry, damaged locks, or suspicious activity.
  3. Use industry-standard, high-quality locks on all entry points and ensure proper installation and maintenance to prevent tampering or bypassing.
  4. Use alarms and cameras to monitor the property and prevent trespassing or vandalism. Alarms alert you to security breaches while cameras provide visual evidence of criminal activities.
  5. Secure valuable assets in a safe location and install alarms or motion-activated lights to deter theft.
  6. Install a lighting system to deter criminals. Use motion-activated lights or timers to ensure the property is well-lit.
  7. Maintain a well-groomed exterior with trimmed landscaping, no debris, and visible security signs to deter intruders.
  8. Develop a relationship with local law enforcement to respond quickly to security incidents.
  9. Have a security plan to guide incident responses and promote staff coordination.
  10. Record all security measures taken at the property, including dates of inspections, repairs, and incidents. It can be helpful in the event of a security incident or insurance claim and provide a historical record of security measures taken.
  11. Train your property management staff on security protocols and procedures to ensure consistent implementation and enforcement.

Restore Stability, Protect the Tax Base, Protect and Secure Vacant Investment Property 

Property management firms in Chicago have a critical responsibility to manage vacant bank-owned and foreclosed properties. The strategies discussed in this article are essential for maintaining neighborhood safety and stability. 

Firms can effectively manage these properties by conducting regular inspections, securing properties, and addressing legal compliance. This not only protects their assets but also supports the overall health of the community. It’s important for property management firms to actively apply these strategies to ensure the well-being of Chicago’s neighborhoods.

Vacant properties can attract crime and destabilize neighborhoods, leading to a cycle of disinvestment and decay. Vacant properties also harm city tax revenues, as they often have unpaid taxes and generate minimal taxes due to their low value. They can also lower property values in the surrounding area, further reducing tax revenues.

DAWGS Vacant Property Security is working with municipalities proactively to address this issue, supporting housing authorities and property managers as they implement programs to restore stability and enhance neighborhoods.