Just How Common Are Illegal Foreclosures? Homeowners Won’t like This Answer

The year-long foreclosure fraud settlement case – now signed into history as the National Mortgage Settlement Agreement – capped off a long battle between lenders and virtually everyone else over illegal foreclosures and illicit foreclosure procedures. The public was shocked at the high level of fraud, deception, and deceit conducted by major lenders at all levels, and lawmakers and government officials were similarly disgusted.

With the agreement now in place, one would think that during the past year and half of heated debate, government probes, and threats of investigations and lawsuits, illicit foreclosure processes that led to illegal foreclosures would have largely subsided or gone away.

That, apparently, isn’t the case.

According to recent research, foreclosure abuse still runs rampant all across the country – a far cry from what many expected to happen as a result of our national debate about foreclosure fraud. One study conducted in San Francisco revealed a whopping 84% of foreclosures conducted in that city were illegal or showed signs of illegal practices. Another study in North Carolina – this one with a much larger sample size – revealed that almost 74% of all home foreclosures in that state between January 2008 and December 2010 showed signs of robo-signing – perhaps the most controversial illegal foreclosure practice of them all.

There is also the notion that many mortgages today have no clear track record of ownership. This is known as ‘provenance’ in art history and archeology; police refer to it as the ‘chain of evidence’. No matter what term you use, the concept is the same: You need to be able to establish clear ownership of something for it to be legal and sound.

In this case, nearly 45% of foreclosure listings in the San Francisco study involved unclear, muddy ownership – suggesting that many foreclosures were sold by someone other than the true owner.

It doesn’t help that California is a pure non-judicial foreclosure state, as is North Carolina (for the most part). States with judicial foreclosure processes, like New York, theoretically have fewer illegal foreclosures – although judicial states like Florida are trying to speed up their processes by taking the courts out of the equation.

The takeaway: Foreclosure abuse is still widespread and can be assumed to still be occurring at high levels across the country. This does not bode well for the market, especially since the foreclosure settlement was supposed to “fix” that problem.

A fix, it seems, is still far away.

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