With the ever-rising tide of residential foreclosures, banks are turning to field service companies to protect their real estate assets pending sale. Field service companies include all manner of vendors, ranging from inspectors to landscapers, locksmiths, contractors, and trash removers. Some field service companies are large national vendors and others are mom-and-pop operations, and new firms are entering the market in record numbers. The use of third party contractors for property preservation and maintenance tasks brings with it the prospect of liability for the mortgagee based on claims of trespass, harassment, or injury. While the lender's contract with its vendor can help mitigate the possible liabilities, it is unlikely to completely eliminate that risk.
Lenders can take several proactive steps to protect themselves against vicarious liability, including thorough vetting of their vendors and regular quality control reviews of their performance. Moreover, lenders should take a prudent approach toward managing the cost of field services, because homeowners in default ultimately pay the costs of these services despite having no opportunity to shop for providers. State and federal consumer protection agencies may scrutinize costs that appear excessive based on consumer complaints, particularly if the lender and service providers are affiliated.
The author's article on the hidden risks in use of field service providers concludes with a series of practical steps lenders can use to minimize their risk while aiding the recovery of loan proceeds and protecting REO assets.
This article first appeared in "Servicing Management" magazine (July 2010) and is reprinted with permission.
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