Foreclosure Errors in Audit

 By Gretchen Morgenson, NY Times

An audit by San Francisco officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggests how pervasive foreclosure irregularities may be across the nation.

The improprieties ranged from the basic – a failure to warn borrowers that they were in default on their loans, as required by law – to the arcane. For example, transfers of many loans were made by entities that had no right to assign them, and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

Kathleen Engel, a professor at Suffolk University Law School in Boston, said: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California’s. Among other things, it requires participating banks to reduce mortgage amounts outstanding on an array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.

 

But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunize lenders and servicers from a host of potential liabilities.” For example, it is a felony to knowingly file false documents with any public office in An audit by San Francisco officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggests how pervasive foreclosure irregularities may be across the nation.

The improprieties ranged from the basic – a failure to warn borrowers that they were in default on their loans, as required by law – to the arcane. For example, transfers of many loans were made by entities that had no right to assign them, and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

Kathleen Engel, a professor at Suffolk University Law School in Boston said: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California. Among other things, it requires participating banks to reduce mortgage amounts outstanding on an array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.

But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunize lenders and servicers from a host of potential liabilities.” For example, it is a felony to knowingly file false documents with any public office in California

In an interview late Tuesday, Ting said he would forward his findings and foreclosure files to the state attorney general’s office and to local law enforcement officials.

California Attorney General Kamala D. Harris announced a joint investigation into foreclosure abuses in December with the Nevada Attorney General Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.

The depth of the problem raises questions about whether at least some foreclosures should be considered void, Ting said.

“We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues,” he said.

California is among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized.

Ting said his report was the first rigorous analysis of improprieties in California.

Compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, the report did not identify specific banks involved in the irregularities.

But among the legal violations uncovered were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent had that basic defect.

In 85 percent of cases, documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found.

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