A Truckload of FAIL (photo: beatefirlinger, flickr)

A Truckload of FAIL (photo: beatefirlinger, flickr)

That’s a pretty startling headline, isn’t it? Yet, that was the conclusion reached by study of 400 foreclosure files commissioned by San Francisco County assessor-recorder Phil Ting. You can read the data in a report authored by the auditors called “Foreclosure in California- A Crisis in Compliance.” It’s only 21 pages long and written in plain language. You should read it, if only for common sense language like this:

Given these well-documented and widespread origination and servicing issues, it is not implausible that there are homeowners who are alleged to have defaulted on loans to which they never fully agreed to and, further, are being foreclosed upon by lenders that might not even own such loans. The fact that these homeowners borrowed something, on some terms, from someone should not be enough to rob them of their due process right.

Gretchen Morgenstern at the NYTimes is all over this story. She writes:

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.

Wow, let that sink in for a minute, “a stranger to the deed of trust gained ownership of the property.” Maybe I should have used that for the headline.

This is not the first time an audit has produced these kinds of results. Law Professor Katherine Porter conducted a similar survey of 1700 mortgage foreclosures in the context of bankruptcy court proceedings. She published her findings in a law review article in the University of Texas Law Review back in 2008. She found:

Using original data from 1700 recent Chapter 13 bankruptcy cases, I conclude that mortgage servicers frequently do not comply with bankruptcy law. A majority of mortgage claims are missing one or more of the required pieces of documentation for a bankruptcy claims. Fees and charges on claims often are poorly identified and do not appear to be reasonable. The bankruptcy data reinforce concerns about the overall reliability of the mortgage service industry to charge homeowners only the correct and legal amount of the debt and to comply with applicable consumer protection laws . . . . . . . . The data also reinforce concerns about whether consumers can trust financial institutions to adhere to applicable laws. The findings are a chilling reminder of the limits of formal law to protect consumers. Imposing unambiguous legal rules does not ensure that a system will actually function to safeguard the rights of parties.

The more recent California audit which covered foreclosure sales from January 2009 to November 2011, demonstrates that the foreclosing banks have not even begun to clean up their act. The NYTimes piece quotes: “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.’ ”

This is further proof, as if we needed any, why the 50 state AG settlement is dumb as a rock. Isn’t it strange that the actual details of that settlement have not yet been published? You don’t suppose the settlement is falling apart, do you?