California audit exposes widespread irregularities in foreclosures there

The New York Times reports that a San Francisco County audit of 400 bank  foreclosures of deeds of trust (the equivalent of a mortgage)  there found serious irregularities. The problems ranged from the technical, eg  “a failure to warn borrowers that they were in default on their loans as required by law” to serious questions about ownership of the loans and validity of titles obtained at the foreclosure sale. Just as a property owner has to have a “chain of title” that is valid and unbroken, the validity of a foreclosure or, where the lender takes the property back at the foreclosure sale, the resulting title to the property, depends on the validity of every transfer of the loan from the original mortgage to the current owner of the loan. To cover up poor record-keeping and document maintenance, a lender might sell or assign a mortgage loan that it no longer controls due to a previous assignment to someone else. The result is the same as if I first deed my home to buyer A, then later give a deed to buyer B. My deed to buyer B is bogus and fraudulent because I no longer own the property I am purporting to sell.

The California study uncovered an amazing 45% of cases where the property was “taken back” at the sale by someone erroneously claiming to be the beneficiary of the deed of trust, ie the mortgage lender. Thus, the report is quoted as concluding, “a ‘stranger’ to the deed of trust,” gained ownership of the property, and the resulting sale may be invalid.

The report has been turned over to the California Attorney General, which is already investigating widespread irregularities in the foreclosure process. Here in New Jersey, persons facing foreclosure or buying at a sheriff sale should be skeptical and demand proof  that the foreclosing lender holds valid “title” to the loan.

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