By Tanya Dennis
San Francisco County officials turned over an audit report to Attorney General Kamala Harris and the San Francisco District Attorney last week that revealed irregularities in 99% of foreclosed homes in the audit.
The study, commissioned by Assessor-Recorder Phil Ting, and compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, revealed that in approximately 400 foreclosures, suspicious documentation or legal violation was discovered in 99 percent of the cases, many with four or more irregularities. The study reveals systematic abuse of homeowners by the banks.
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.”
Last week the Attorneys General reach a $26 billion settlement regarding foreclosure improprieties with 1.5 billion to borrowers who were foreclosed upon illegally. Unfortunately those homeowners will only receive $2,000 for their homes, and as the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities.”
The study found banks filed false documents. It is a felony to knowingly file false documents with any public office in California, and many transfers of loans were made by entities that had no right to assign them, while banks took back properties in auctions without proving they owned the property.
Mr. Ting’s report is the first detailed analysis of foreclosure improprieties in California that cast doubt on the validity of almost every foreclosure examined.
The study found problems with the loan servicers not providing borrowers with a notice of default before the eviction process; 45 percent of homes were sold at auction to entities improperly claiming to own the deeds of trust, which would render the sale invalid; 85 percent recorded the transfer of a defaulted property to a new trustee improperly or not on time; breaks in the chain of title were found, a process where the lender must “endorse” the note to the new lender. In 6% of the cases, this was not done which indicates that the written transfers are invalid. The audit found serious flaws with MERS, the electronic beneficiary database set up by Freddie and Fannie Mac. 58% of the time MERS showed different owners for the same property.
Banks are aware of these potential problems and those selling foreclosed properties now require buyers to sign a document that will hold them harmless if questions arise regarding the validity of the foreclosure sale.
“Clearly, we need to set up a process where lenders are following every part of the law,” Mr. Ting said. “It is very apparent that the system is broken from many different vantage points.”
Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. The report contradicted the stance many banks have taken that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. The report notes that, “We can deduce from the public evidence that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”
The auditors say their report paints an “accurate picture” of the mortgage industry’s failure to comply with California’s foreclosure laws.