Bank-Owned and Preservation Work

Why this matters

A foreclosed house still needs its pipes drained before the freeze and its doors locked against squatters, and somebody local gets the work order. That work is steady, it arrives in volume when the market turns, and it pays on a schedule and at a rate that will quietly lose you money if you take it on the same terms as a retail service call. The shops that do well in it treat it as a separate line of business with its own price floor, its own photo discipline and its own receivables plan. The shops that do badly find out sixty days later that their invoices were cut, one missing photo at a time.

Who is actually sending the work

Three layers sit between you and the owner of the house, and the money and the rules come from different ones.

• The owner. After a foreclosure the lender or the loan's investor takes title. The house is now REO, short for "real estate owned", which is the bank's accounting term for property it holds rather than a loan it services. On a loan insured by FHA or guaranteed by VA, or owned by one of the big secondary-market investors, the investor's own guidelines set what must be done and what it will reimburse.
• The asset manager. A person or firm responsible for getting the house sold for the best net recovery. They approve bids, hold the listing agent accountable and decide whether a repair is worth making before sale. They are the one who says yes to anything outside the standard menu.
• The property preservation company. A national or regional firm that holds the contract to inspect, secure and maintain a portfolio of houses, and subcontracts the field work to local vendors. This is usually who you work for. You sign their vendor agreement, you take their work orders through their portal, and they pay you.

Before foreclosure is complete the same structure exists one step earlier: the mortgage servicer has a duty to inspect and protect a property it believes is vacant, and hires the same preservation firms to do it. For FHA-insured loans that duty is written into HUD's rules at 24 CFR 203.377, which is why so much preservation work is standardized around HUD's and the investors' published requirements rather than anyone's local judgment.

The practical point: the preservation company did not set your scope and cannot widen it. A crew that finds a split supply line while winterizing and fixes it without a bid approval has done unpaid work, however obviously necessary it was.

The work that comes in

Most orders fall into a short list, and each has a defined "complete" state that the photos have to prove.

Winterization is the order most trade shops are asked for first, because draining and pressure testing a plumbing system is plumbing. The client's spec states the test pressure and the hold time; your photo of the gauge at both ends of the hold is the proof, and a reading that drops means a leak you report rather than repair. A sibling article covers putting the house back in service later. See related: Restoring a Winterized Vacant Home for Inspection.

A license still applies. A preservation work order that says "repair furnace" or "replace water heater" does not relieve you of the state's licensing, permit and inspection rules for that work, and some work orders are written by people who do not know those rules exist. Where the state requires a license or a permit for the task, the job takes one whatever the portal says.

Photos are the deliverable

In retail service, the repair is the product and the photo is a courtesy. In preservation, the photo is the product. The person approving your invoice has never seen the house and never will; they see your upload and compare it against a checklist. If an angle is missing, the order is marked deficient, and that is the single largest cause of short pay.

What the checklists commonly demand:

• A street-number photo first, proving which house you were at. A house without a visible number needs the mailbox, the curb painting or a neighboring number in frame.
• Date and time stamps from the camera or the portal app, not added afterward. Some clients reject photos whose metadata does not match the work date.
• Before, during and after from the same position. "After" from a different angle reads as a different defect.
• One subject per photo, close enough to read a gauge or a lock, then a wide shot locating it in the room.
• Every room on an interior walk, even the empty ones, because the walk is also the client's damage record.

The habit that saves the most money: take the photos in the client's checklist order, upload before you leave the driveway, and check the count against the checklist. An angle you missed is a drive back if you notice tonight and a chargeback if the reviewer notices next week.

Entering a vacant house

A vacant house is not an empty one. It can hold a squatter, a dog left behind, a swarm, needles, a floor rotted by a leak nobody saw, and a gas service still live to an appliance with an open line. Before you open the door, walk the exterior and look for signs of occupancy (a car, fresh trash, a window cracked open, a light on), and if you see them, do not enter: leave, call the preservation company and, if the occupant's presence looks unlawful, let them involve the police. Knock and announce at the door even when you expect nobody.

Inside, the first act is your nose and your eyes, not your tools. A smell of gas means you leave immediately, touch no switch, use no phone inside and call the gas utility from outside. Standing water near a panel or a live receptacle means you stay out of the water until the power is confirmed off at the service. Heavy visible mold or droppings in quantity means respiratory protection under a written program per 29 CFR 1910.134 before anyone disturbs it, or the work comes off your scope. Work in pairs where the client allows it, and where it does not, tell the office when you go in and when you come out. A sibling article owns the full access-and-exit procedure. See related: The Vacant Home Access and Exit SOP.

The economics, worked through

The rate structure is the part that catches shops out. Preservation companies pay from a price matrix, sometimes called the allowables: a flat amount per order type, regardless of how far you drove or what you found. Some charge you a vendor or technology fee per order. Most pay on terms measured in weeks, and many hold back or reduce payment for a deficient photo set, which they call a chargeback.

Take one winterization order. Say the matrix pays a flat amount equal to 2.5 hours of your normal billed labor rate, and say the house is the typical distance into the client's territory.

• Drive: 45 minutes each way, so 1.5 hours round trip.
• On site: 2.0 hours to shut off, drain, blow out, pressure test, antifreeze the traps and post the notices.
• Photos and upload: 0.5 hours, sorting and labeling against the checklist.

Total time is 1.5 plus 2.0 plus 0.5, which is 4.0 hours. The order pays 2.5 hours of your rate, so you are earning 2.5 divided by 4.0, or about 63 percent of your normal hourly rate, before the vendor fee and before parts. That is the number to put next to your retail work, and it is the number most shops never compute.

Now add the payment terms. Say the client pays 60 days after an order is approved, and approval takes a week. You have carried that labor cost for roughly 67 days. If one order in ten comes back deficient and the client pays deficient orders at half, your expected payment falls by 10 percent of half, which is 5 percent, and the 63 percent becomes about 60 percent.

What changes the answer. Three things move this from a loss leader to a decent line:

1. Density. If the client sends four winterizations in one subdivision on one day, the 1.5 hours of drive is spread across four orders. If the houses are minutes apart, drive per order becomes 1.5 divided by 4, about 0.4 hours, total time per order about 2.9 hours, and 2.5 divided by 2.9 is about 86 percent of your rate. Volume in a tight radius is the whole business model.
2. Bid work. Repairs on bid are priced by you, not by the matrix. Shops that make money in preservation usually do so on approved bids, using the matrix orders to stay on the client's roster.
3. Off-season filler. If the alternative is a technician sitting idle in a slow month, 63 percent of rate beats zero. That is a legitimate reason to take the work, as long as you know that is the trade you are making.

The failure mode is a shop that takes the work at retail expectations, does not track time per order, and finds after a winter that the line consumed a fifth of its technician hours while bringing in a much smaller share of revenue.

Getting paid

• Read the vendor agreement before the first order, especially the payment terms, the chargeback rules, the insurance minimums and whether the client can withhold payment on one order to offset a dispute on another.
• Invoice within the portal's window. Many portals close an order to invoicing after a set number of days.
• Keep your own copy of every photo set. If a chargeback is disputed, your timestamped originals are the evidence, and the portal's copy may be compressed or gone.
• Track receivables by client. A preservation client that drifts from 60 days to 120 has a cash problem of its own. Stop accepting orders before you become its lender.
• Watch for a client that disappears. Preservation firms change hands and lose contracts. An outstanding balance with a firm that has just lost its portfolio may never be paid, so a growing balance with one client is a risk worth capping.

When to say no

Turn the order down, or bid it rather than taking the matrix, when the drive alone exceeds about half the matrix allowance, when the scope requires a licensed trade or a permit the order did not price, when the house shows signs of occupancy, or when the photo spec demands something you cannot produce (a reading from equipment you do not carry). An order declined at assignment costs you nothing. An order accepted and abandoned can cost you the vendor relationship.

References

• 24 CFR 203.377, the FHA mortgagee's duty to inspect and preserve a vacant property
• 29 CFR 1910.134, respiratory protection, before disturbing mold or heavy contamination in a vacant house
• The preservation company's vendor agreement and photo specification, which set the scope, the test values and the payment terms for each order
• See related: The Vacant Home Access and Exit SOP
• See related: Restoring a Winterized Vacant Home for Inspection