Foreclosure Fraud Epidemic Sweeps the Country

by 17 Feb 2012
( Alarming reports from diametrically opposed areas of the United States are revealing that mortgage lenders and the law firms representing them are still engaged in highly dubious foreclosure practices. Mortgage audits in California and North Carolina showed a high percentage of irregular foreclosures and forced evictions. One of the issues noted in those audits was “robosigning”, a questionable practice that lead to a nationwide investigation by state attorney generals and a multi-billion settlement by five major mortgage lenders.

The jurisdictions where the audits took place are the City of San Francisco in California, Guildford County in North Carolina and Essex County in Massachusetts. In San Francisco alone, 84 percent of the 400 foreclosure documents reviewed and examined were found to contain irregularities. A similar situation was observed by the Register of Deeds in Guildford County, where 4,500 out of 6,100 registered mortgage documents showed signs of improprieties, including the infamous robosignings. In Essex County, 75 percent of the Assignment of Mortgage documents examined were inconsistent with the law.

Legal experts have cited that one of the problems that currently plague the default and foreclosure processes across the United States is loan repackaging, a complex financial practice that is thought to have played a major part in the collapse of the mortgage debt markets in 2008. The repackaging of mortgage loans for investors turned them into financial instruments that do not present a clear history of ownership. In many cases, homeowners have been served with foreclosure filings from multiple mysterious mortgage companies they do not recall ever dealing with before. This problem is exacerbated by the fact that some of the lenders conducting the foreclosures may not even have a legal claim to the mortgages.

In states like California, where the foreclosure process is non-judicial, the rate of unlawful foreclosures is bound to be higher. Lenders and law firms in those states do not have to appear before a judge when foreclosing upon a residential property, and thus are more likely to engage in questionable practices.

In judicial foreclosure states the situation is only slightly better, as revealed by the recent mortgage audits. In courthouses and judicial complexes across the country, lenders have retained aggressive law firms that have been labeled as foreclosure mills. Even though borrowers have greater recourse in judicial foreclosure states, the foreclosure mills are alleged to have employed strong-arm tactics against homeowners in order to accelerate repossession and eviction.


Should CFPB have more supervision over credit agencies?