‘Utterly Broken’ Foreclosure Process In California, Study Finds

A study initiated by the San Francisco’s Assessor’s Office has found “irregularities” in 99 percent of the residential mortgage transactions that resulted in recent foreclosure sales – and “clear violations of law” in 84 percent of these transactions. The author of the study, Aequitas Compliance Solutions, Inc., a mortgage regulatory compliance consulting firm, concluded that, “with so many homes being foreclosed and with so little oversight, California’s foreclosure process appears utterly broken.” 

Aequitas also concluded in its study, entitled “Foreclosure in California: A Crisis of Compliance,” that “[t]he integrity of California’s record title system is also at stake because the validity of title for subsequent purchasers is dependent on those that precede it.”
 
Aequitas acknowledged that the mortgage industry is asserting that it is taking “vigorous steps” to work at its shortcomings, but Aequitas stated that the paradox was that “the foreclosure crisis has been caused by their successes as much as their failures. During the boom, poor underwriting and documentation standards made possible the blistering rate of originations and securitizations. While it invested heavily in production, the mortgage industry did not apply commensurate resource and ingenuity to the quality control and servicing function. Consequently, outmoded infrastructure and incomplete, or missing, loan documentation made it infeasible to carry out large‐scale foreclosures.”
 
Can the problems be solved? Aequitas said it is “difficult to imagine how the industry can cost-effectively solve these problems ex post facto.”
 
Aequitas also suggested that the $25 billion mortgage loan servicing settlement neither resolves most of the issues identified in the report “nor immunizes lenders and servicers from a host of potential liabilities arising therefrom.”Aequitas also observes that state and federal authorities “can pursue criminal actions and also punish wrongful conduct related to the bundling and sale of mortgage loans into investment securities,” and that the $25 billion settlement “would not release lenders from charges arising under California Penal Code §115, which states that any person who ‘knowingly procures or offers any false or forged instrument to be filed, registered, or recorded in any public office within this state, which instrument, if genuine, might be filed, registered, or recorded under any law of this state or of the United States, is guilty of a felony.”
 
Given that the $25 billion settlement also does not provide a release for any private claims by individuals or any class action claims, we here at the Financial Fraud Law Blog and the Financial Fraud Law Report believe it is quite clear: we have not yet seen the end of the mortgage foreclosure crisis.