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[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>


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February 15, 2012
Audit Uncovers Extensive Flaws in Foreclosures By GRETCHEN
MORGENSON<http://topics.nytimes.com/top/reference/timestopics/people/m/gretchen_morgenson/index.html?inline=nyt-per>

An audit by San Francisco county officials of about 400 recent
foreclosures<http://topics.nytimes.com/top/reference/timestopics/subjects/f/foreclosures/index.html?inline=nyt-classifier>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 suggest how pervasive
foreclosure irregularities may be across the nation.

The improprieties range 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 in the foreclosure files 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<http://aequitasaudit.com/images/aequitas_sf_report.pdf>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, that settlement
requires participating banks to reduce mortgage amounts outstanding on a
wide 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 immunizes 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, Mr. Ting said he would forward his findings
and foreclosure files to the attorney general’s office and to local law
enforcement officials. Kamala D. Harris, the California attorney general,
announced a joint investigation into foreclosure abuses last 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, Mr. 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 has been 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. Mr. Ting said his report was the first rigorous analysis of
foreclosure improprieties in California and that it cast doubt on the
validity of almost every foreclosure it examined.

“Clearly, we need to set up a process where lenders are following every
part of the law,” Mr. Ting said in the interview. “It is very apparent that
the system is broken from many different vantage points.”

The report, which was compiled by Aequitas Compliance Solutions, a mortgage
regulatory compliance firm, did not identify specific banks involved in the
irregularities. But among the legal violations uncovered in the analysis
were cases where the loan servicer did not provide borrowers with a notice
of default before beginning the eviction process; 8 percent of the audited
foreclosures had that basic defect.

In a significant number of cases — 85 percent — documents recording the
transfer of a defaulted property to a new trustee were not filed properly
or on time, the report found. And in 45 percent of the foreclosures,
properties were sold at auction to entities improperly claiming to be the
beneficiary of the deeds of trust. In other words, the report said, “a
‘stranger’ to the deed of trust,” gained ownership of the property; as a
result, the sale may be invalid, it said.

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. Many of the foreclosures that were
scrutinized showed gaps in the chain of title, the report said, indicating
that written transfers from the original owner to the entity currently
claiming to own the deed of trust have disappeared.

Banks involved in buying and selling foreclosed properties appear to be
aware of potential problems if gaps in the chain of title cloud a
subsequent buyer’s ownership of the home. Lou Pizante, a partner at
Aequitas who worked on the audit, pointed to documents that banks now
require buyers to sign holding the institution harmless if questions arise
about the validity of the foreclosure sale.

The audit also raises serious questions about the accuracy of information
recorded in the Mortgage Electronic Registry System, or MERS, which was set
up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report
found that 58 percent of loans listed in the MERS database showed different
owners than were reflected in other public documents like those filed with
the county recorder’s office.

The report contradicted the contentions of many banks that foreclosure
improprieties did little harm because the borrowers were behind on their
mortgages and should have been evicted anyway. “We can deduce from the
public evidence,” the report noted, “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.”


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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