Municipalities are increasingly holding mortgage securitization trusts liable for the upkeep of properties, which could affect investors' cashflows, according to a new report from Moody's Investors Service.

A Moody's spokesman told ASR sister publication National Mortgage News that its analysts, who based their findings on anecdotal conversations with servicers, are finding that municipalities large and small are asking more from servicers when it comes to these properties, even before they are in foreclosure.

Springfield, Mass., and Chicago have backed legislation aimed at holding the trusts liable for property upkeep.

Springfield, for example, calls for servicers to conduct mediation sessions with distressed borrowers within 45 days of foreclosure notice or face fines, something Moody's said could increase already-lengthening foreclosure timelines.

Some of the costs would be as follows, according to Moody's: Servicers would pay a $100 vacant property registration fee in Springfield ($250 in Chicago) once the service determines the property is uninhabited.

Both ordinances require servicers to post a $10,000 surety bond with the city to cover vacant property maintenance at a cost of generally $1,000-$1,500 per property, and then even if the city does not need to collect on the surety bond it returns only about half the bond amount.

Property maintenance costs would be sustained for around 10 months before the servicer takes title to the property on behalf of the securitization.

The two ordinances also both increase the risk of the property owner suing the servicer or trust for making changes or trespassing on property that is not legally theirs.

Municipalities, in general, also are asking for servicers in a growing number of cases to register and put up bonds similar to some requirements of the Springfield and Chicago ordinances.

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