While state attorneys general and lawyers for five of America's largest banks basked in the spotlight of their $25 billion federal-state legal settlement over botched mortgage modifications and bungled foreclosures, a troubling report on recent foreclosure fraud quietly slipped under the public radar.
The San Francisco county audit that examined about 400 county foreclosure sales between January 2009 and November 2011 found that 84 percent contained apparent violations of law and 2 out of 3 had at least four violations or suspicious documentation.
Tales of foreclosure abuses are old news by now – or should be. What makes the San Francisco audit noteworthy is the snapshot it presents of just how pervasive the shortcuts and legal violations still may be across the country.
"If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest," Kathleen Engel, a professor at Suffolk University Law School in Boston, told The New York Times.
The ghosts of botched foreclosures past clearly live on today. Among the abuses noted in the audit were the failure to warn borrowers that they were in default on their loan as required by law, the transfer of loans in foreclosure by entities that had no legal right to do so, and institutions taking back properties in auctions without proving ownership.
Other audit findings:
- In 85 percent of the cases, documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time.
- In 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust, which should invalidate the sale.
- In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose.
- 58 percent of loans listed in the Mortgage Electronic Registry System, or MERS, database showed different owners than were reflected in public documents.
- Many foreclosures showed gaps in the chain of title, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
San Francisco assessor-recorder Phil Ting, who commissioned the audit, said its findings place in question whether at least some of the foreclosures should be voided.
“Clearly, we need to set up a process where lenders are following every part of the law. It is very apparent that the system is broken from many different vantage points," Ting said.
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