The Federal Deposit Insurance Corp. is instructing banks to practice proper maintenance and accounting for real estate acquired through foreclosures.
In guidance released Tuesday to the institutions it supervises, the agency said higher foreclosures stemming from the housing crisis have increased the importance of valuing properties — known as "other real estate" — correctly once defaulted borrowers have handed them over, following local building codes and tax requirements, and complying with accounting standards to hold the assets through their disposition.
"Efforts to ensure an ORE property is maintained in a marketable condition not only improve an institution's ability to obtain the best price for the property, but also minimize liability and reputation risk," according to the guidance.
Banks need to obtain a new valuation once the property is handed over, and in many cases the valuation must be updated annually to comply with state laws, the FDIC said.
The agency also instructed institutions to ensure they are following local fire and property codes.
When an institution obtains a property, it must be recorded at fair value, minus the cost the bank would incur in selling it, the FDIC said.
