San Francisco's Foreclosure Audit Turns Up Irregularities, Illegal Activity

An audit of San Francisco foreclosures conducted by county officials revealed documentation errors were evident in nearly all of the cases examined.

Auditors reviewed 382 case files that resulted in a foreclosure sale between January 2009 and October 2011. They identified one or more irregularities in 99 percent of the loans and one or more clear violations of state law in 84 percent.
San Francisco’s Office of the Assessor‐Recorder says its analysis “presents an accurate picture of the nature and frequency of the mortgage industry’s performance respecting compliance with important aspects of California’s nonjudicial foreclosure laws” and by releasing the results, it hopes to open a dialogue on the importance of ensuring compliance so that corrective action can be taken.
The county recorder says this means working productively with the mortgage industry to improve compliance and effecting legislative change so that the laws more accurately reflect the current state of California’s mortgage market.
California’s foreclosure laws generally are concerned with imposing procedural obligations on foreclosing parties and providing due process rights to homeowners in order to ensure that the streamlined non‐judicial foreclosure process is not abused, the country recorder explained in the report.
“It is worth noting that the process was created long before things such as the secondary market and mortgage brokers existed. When the laws were first enacted, lenders ‘originated‐to‐hold’ loans for their portfolio and rarely sold mortgage loans,” the report points out.
The securitization-spurred boom in originations prior to the downturn ultimately made it infeasible to carry out large‐scale foreclosures once the market turned, according to the country recorder.
San Francisco officials contend that given the well‐documented and widespread origination and servicing issues related to mortgage transfers in securitization, as well as the foreclosure documentation errors uncovered with the robo-signing debacle of 2010, “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.”
They maintain that just because these homeowners entered into a contractual lending-borrowing agreement, that should not be enough to rob them of their due process right.
The county officials, however, are quick to follow those claims with a reproof for blaming mortgage lenders and the mortgage industry as a whole.
“We are not asserting that every distressed borrower is a victim and that the mortgage industry is collectively guilty of defrauding homeowners,” the report said. “Certainly many borrowers knowingly and recklessly overextended themselves. The U.S. housing market’s … future stabilization depends heavily upon the responsible actions of many of the industry’s leading participants.”
The San Francisco County recorder’s report was published within a week of the announcement that 49 state attorneys general and the federal government finally agreed to a settlement with the country’s five largest mortgage servicers over allegations of robo-signing.
“[I]f nothing else, this report provides a fuller context for understanding the general nature and extent of the problems precipitating California’s participation in the settlement,” county officials said.