How Pervasive is the Problem of Mortgage Fraud and Clouded Title Issues?

Lenders like to argue that when a homeowner gets behind on the mortgage the issues involved in foreclosure are cut-and-dried. The homeowner owes on the mortgage, they have not been able to catch up over many months, so they should pay and/or lose the house. The reality is far less clear-cut. In many cases homeowners do not argue in court that they don’t owe on a mortgage; the real questions are who does the homeowner owe the loan to and does the party bringing a foreclosure action really have standing to file for foreclosure?

An audit ordered by San Francisco assessor, Phil Ting, of about 400 foreclosures was reported in a New York Times article by Gretchen Morgenson showing pervasive irregularities in how mortgages are written and how foreclosure filings are carried out. While the study was specifically of problems with San Francisco area foreclosures, similar findings could be made nationwide. For example, a recent whistleblower report on Wells Fargo exposed the systematic fabrication and alteration of mortgage documents nationwide. Their fraud was so rigorous that they even took loans that were endorsed properly and altered them as well!

Of the 400 foreclosure filings from January 2009 to November 2011 that were examined there were clear violations of the law found in 84% of the files, and two-thirds of the files had more than four violations or irregularities. The study puts to rest the notion that these irregularities are just isolated cases.

Here is a sampling of the problems found in the San Francisco foreclosure documentation study:

• 8% of the sample did not properly notify the borrower of a default;
• 85% of the sample failed to show proper transfer of recorded documents to a new trustee, or the documents were not filed on time;
• 45% of auction sales were to entities improperly claiming to be the beneficiary of the deed of trust making the sale invalid;
• 6% of cases had the same deed of trust assigned to two or more entities at the same time making it unclear which had the right to foreclose.

The report casts serious doubt on the accuracy of MERS transfers. In 58% of the cases audited found that loans listed in the MERS database showed different owners than were reflected in other public documents filed in the county recorder’s office.

But what about that $25 billion settlement with the largest banks? According to experts, the settlement covers just a small portion of the issues identified as fraudulent and it does not inoculate lenders and servicers from a whole raft of potential liabilities. This audit provides clear evidence that homeowners are routinely being deprived of their legal safeguards and due process in foreclosures.

These frauds have opened up a huge opportunity for real estate investors to help underwater homeowners AND pick up properties at large discounts. By investigating the specific circumstances behind underwater homeowners’ loans, we are discovering unbelievable and blatant fraud that can be used as leverage against the banks in order to negotiate huge discounts. This allows investors to free homeowners from the burden of dumping money into an underwater home while doing some incredible deals.

If you would like more information on this awesome strategy, give my office a call at 706-485-0162!