February 16, 2012
Foreclosure Flaws Uncovered In San Francisco
From the New York Times with respect to the results of an audit commissioned by San Francisco assessor-recorder Phil Ting that reviewed roughly 400 foreclosures that occurred in San Francisco from 2009 to 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.
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.
A big question: could the flaws result in clouds on title for the foreclosed upon homes?
∙ Audit Uncovers Extensive Flaws in Foreclosures [New York Times]
First Published: February 16, 2012 6:00 AM
Comments from "Plugged In" Readers
Posted by: Eddy at February 16, 2012 8:35 AM
Title insurance, well said
Posted by: Well said at February 16, 2012 8:38 AM
Title insurance,yes. The real question is once one of these deals goes sideways and Title is challenged. Will Title companies continue to insure foreclosed homes?
Remember when you buy at the steps you do not get Title insurance. It would require a quiet title action to get clear title back. Even then all parties have to be properly noticed or the quiet title action can be challenged.
Posted by: jimmythekid at February 16, 2012 9:06 AM
Does anyone have a sense of what the historical loss ratio is for title insurers?
An 84 percent defect rate in a sample is not reassuring. If people actually began to dispute chain of title, are the title insurers really capable of indemnifying their assureds?
Your insurance is only as good as your insurer's ability to pay for a loss . . .
Posted by: Didoson at February 16, 2012 9:14 AM
I've no doubt that we could turn this into a 67 comment article debating the likely long term impacts of title irregularities in San Francisco. This is a national issue with a local focus.
Nowhere in the article did it state that certain of homes foreclosed upon were actually paid up on their loans and were taken by force. So ultimately there is almost zero chance that the buyer of a home conducted via proper channels with title checks/title insurance are going to run into an issue where said title becomes an issue.
The most egregious title cases I've seen were the woman who paid market price for a BMR; and the person that bought the worthless 2nd or 3rd at auction, which wasn't really a title issue, just a case of dumb luck.
But banks really should be getting this right and following protocol. The guy featured on here recently with the epic rant on his foreclosure process can hardly be blamed.
Posted by: eddy at February 16, 2012 9:18 AM
Eddy, I think the risk comes not from the previous homeowner per se. But when an attorney (think class action) puts an add on TV something like this " If you were foreclosed on you may have a right to economic recovery ... attorneys at Findem Burnem and Cheatem will fight for your rights.
It is not a question of whether the loan was paid or not; that is a mute point. Was the foreclosure lawful? That is what the law concerns itself with.
Posted by: jimmythekid at February 16, 2012 9:41 AM
"Old Republic will not insure Chase foreclosures" While this is from 2010 and has probably since been resolved it just shows what can happen.
Posted by: jimmythekid at February 16, 2012 10:27 AM
ah, what's the big deal. can't we just forgive and forget? all that property law, it's just really old and complicated anyway. another example of government regulation choking free enterprise.
Posted by: steve at February 16, 2012 10:30 AM
So ultimately there is almost zero chance that the buyer of a home conducted via proper channels with title checks/title insurance are going to run into an issue where said title becomes an issue.
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.
Issue is forclosed by wrong bank not much previous homeowner
title companies wont just take losses
Posted by: Watcher at February 16, 2012 10:35 AM
Agree with eddy and jimmy.
Not certain that there are sufficient damages to borrower/plaintiff in foreclosure of an unpaid mortgage to justify foreclosure.
Conversely penalties for falsifying loan applications, although not frequently exercised, are stiff felonies.
Jimmy, I doubt many cases would actually be taken up, defense counsel can point to nonpayment and potential falsification of loan docs, all plaintiff has is a technicality on title documentation, correct documentation for which would probably be "found" fairly quickly.
This was a nice study for the city to commission. Insightful.
Posted by: Billyballs at February 16, 2012 10:35 AM
Second sentence in prior post should read:
Not certain that there are sufficient damages to borrower/plaintiff in foreclosure of an unpaid mortgage to justify a class action.
Posted by: BillyBalls at February 16, 2012 10:42 AM
I understand what you are saying. The banks may even be getting global immunity from these issues by settling with the respective State AG's. They have already agreed to pay anyone who was foreclosed between such and such dates by such and such banks can get a couple grand.
So if an entrepreneurial attorney wanted to squeeze some cake out of the Title companies What is to stop him. Heck the Banks have already admitted wrong doing. Alleging false loan doc's is no defense and does not clear the title chain. It is not the former owner that stands to gain you just need a few cases get class action status and the Attorneys have huge incentive to "get justice" for similarly situated clients.
Posted by: Jimmythekid at February 16, 2012 10:51 AM
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.
My Apologies too
Cutoff quote above
Posted by: Watcher at February 16, 2012 10:53 AM
Regarding title company exposure. If title is challenged under your policy you are owed a defense or if the title company believes they are wrong they can settle for up to the insured amount.
The title company in order to defend itself would have to rely on the docs provided by the banks or their servicers the very same docs that the Banks have already admitted were "flawed"
Posted by: jimmythekid at February 16, 2012 11:02 AM
OK, I put two and two together and, I smell a rat, as I usually do.
Here's what is going to happen: the bank will pay you your $2000 from the foreclosure settlement, provided you sign a quitclaim deed that clears the title. The banks will clean up the remaining documentation among themselves, and face it, they aren't coming after the buyers of their foreclosures for a title settlement.
I suspect the whole federal settlement thing was done to clear up these problems. If it's true, it will mean Obama really just put the whole thing together to benefit the banks.
Posted by: tipster at February 16, 2012 11:30 AM
a comment from tipster we can all agree with
Posted by: steve at February 16, 2012 12:56 PM
Why in the world would one sign a quit claim deed that clears the title in exchange for a measly $2k? Are you assuming everyone is a crystal meth addict jonesing for their next fix and can't think straight?
Posted by: Brahma (incensed renter) at February 16, 2012 1:11 PM
> Why in the world would one sign a quit
> claim deed that clears the title in exchange
> for a measly $2k? Are you assuming everyone
> is a crystal meth addict jonesing for their
> next fix and can't think straight?
Most people (that don't use crystal meth) who overpaid for a home or condo and then lived in the place for a free for a year or two after they stopped paying the mortgage (and property taxes and HOA) will be happy to get an extra $2K since the chance of getting the home or condo back for free because the "loan servicer did not provide borrowers with a notice of default before beginning the eviction process" are slim to none...
Posted by: FormerAptBroker at February 16, 2012 1:28 PM
Foreclosure, taking a man's house away from him, has very specific laws as to the correct, legal, process. These date back way before the Magna Carta to Old English Common Law. This settlement is unjust and needs to be thrown out. If each and every case needs to be litigated, than so be it. Putting families on the street is a very serious matter and should not be short-cut; even if the borrower is in default. They still own the property and are entitled to due process.
I'm done w/ my rant.
Posted by: MysteryRealtor at February 16, 2012 4:57 PM
My understanding of the settlement is that those receiving the $2,000 do not have to give up any right to sue the banks in order to get the money. But hey, I guess it makes for fun snark to pretend they do.
Posted by: Rillion at February 17, 2012 11:23 AM
I love that Phil Ting, assessor and automatic 2% increaser of appraised value, against all evidence to the contrary, spent taxpayer funds investigating this issue. I have yet to learn of a borrower current in his mortgage who has lost his home in SF.
Posted by: Pablo at February 19, 2012 8:12 PM
^What Pablo said. Also, why can't Phil Ting get transferred property reassessed in a timely manner? How in the world can it take 3 years? He should be focusing on his current job instead of getting publicity for his campaigns & stirring people up over non-issues. He annoys me.
Posted by: Katie at February 20, 2012 11:20 AM
@Pablo & Katie
You don't find it at all disturbing that 82% of the investigated foreclosures had evidence of fraud?
From the report:
""These practices include: fabricating documents that should have been signed years ago and submitting them as evidence to foreclose on homeowners, backdating documents... We refer to these instances as “Suspicious Activity.”
While we observed a meaningful number of issues relating to Suspicious Activity, we focused on three topics: “strangers” to the deed of trust purporting to be Beneficiaries, back‐dating of documents and incorrectly executed documents.
Overall, 82% of the subject loans contained one or more exceptions relating to these three topics."
Posted by: lyqwyd at February 21, 2012 10:25 AM
I don't think it is fair for banks to steamroll borrowers with faulty documentation. That said, I am dubious that 82% of foreclosures have happened to borrowers who have fully complied with the promissory notes that they signed. If you borrow money, you are supposed to pay it back on the terms described. It's not so complicated.
Phil Ting is a tax collector, not an attorney general, not a legal defender of the public. This is a naked self-serving political exercise to make himself look good. In as much as he automatically increases homeowners property taxes during a market (well documented by this forum) that is falling is the height of hypocrisy.
The city would be better served by the tax assessor seeking to do his job fairly and honestly rather than trying to crusade as a defender of the people.
Posted by: Pablo at February 23, 2012 2:34 PM
this foreclosure stuff is not complicated.
a promissory note is not any different than a dollar bill.
question for all is would "wells fargo" or any other "depository" accept a fake dollar bill? NO of course not
so, why should any judge accept a fake "promissory note"?? of course, the judge should not.
it is called "law"
a "promissory note" and a "dollar bill" are both negotiable instruments and if either is Fake or Fraudulent or simply do not have all t's and i's crossed, then both are bullshit, whether from a bank's perspective or anyone else's perspective.
no one thought 2008 and the "financial crises" would happen. in 2007 or before, NONE of you on this site ever thought Fannie or Freddie would go BK. They did
Banks and Originators and Servicers and MERS did not follow the law. It has nothing to do w/a "borrower paying their mortgage or not". w/out a genuine "negotiable instrument", borrowers Win.
all very simple
Equity will transfer from banks/lenders to borrowers because many banks/lenders (and MERS or thru MERS) committed fraud
Posted by: johnny at February 23, 2012 9:04 PM
See Lost Note Affidavit
note for y'all that I have personally executed one or two LNAs in my day, and have therefore had all known hard file folders associated with this loan (the servicing file, the branch's copy, the custodial file, whatever there is), as well as all correspondence with the warehouse bank or custodian or whoever else might have had it brought to my desk, so I could personally root through it all once more before I put my officer's signature on an LNA. In all but one of the LNAs I can remember executing, I had documentation from FedEx or some other shipper that a package had indeed been lost, plus clear documentation in the loan file that this specific note had been included in that specific lost shipment. (My shipping department always put the copy of the airbill in the loan file. Always.) And of course I always had a certified true and correct copy of the note to attach to the affidavit.
I bring all this up because, Lents' self-serving nonsense aside, not only can original notes be lost or damaged, so can car titles and any other piece of paper. (I have a friend who once had to execute over 100 LNAs after a fire in an adjoining office suite triggered the sprinkler system in her post-closing department. Those LNAs were accompanied by copies of sodden bits of semi-readable paper that had been patched together on the copier plate, one at a time.)
Posted by: Watcher at February 23, 2012 10:16 PM
A Dollar Bill is a Negotiable Instrument
A Promissory Note is also a Negotiable Instrument
A Bank/Lender would Never accept deposit of a dysfunctional Dollar Bill
A Judge should Never accept deposit of a dysfunctional Promissory Note
Time to stop giving Banks/Lenders a Free Ride (and equity) The equity will always be present, just follow the law and give it to the right person or entity.
Posted by: johnny at February 24, 2012 7:02 AM