Across the country from California, Jeff Thingpen, register of deeds in Guildford County, North Carolina, examined 6,100 mortgage documents last year, from loan notes to foreclosure paperwork. Of those documents, created between January 2008 and December 2010, 4,500 showed signature irregularities, a telltale sign of the illegal practice of "robosigning" documents.
Robosigning involves the use of bogus documents to force foreclosures without lenders having to scrutinize all the paperwork involved with mortgages. The practice was at the heart of the foreclosure scandal that led to a $25 billion settlement between the U.S. government and five major banks last week.
The banks have never formally admitted any wrongdoing. A Wells Fargo spokesman said, "We have acknowledged we didn't always follow our policies in the foreclosure process. We found some areas where there were deficiencies in our process."
It is expected that the $25 billion settlement will include no admission of wrongdoing by the banks.
Home loans have dropped 33 percent from a 2006 peak that was fueled by generous loans, often to people with dubious credit records. Nearly 11 million Americans now owe more than their homes are worth.
Thingpen said the San Francisco audit, which was commissioned by the city's assessor-recorder, Phil Ting, was not an exceptional case. "Where there's smoke, there's fire, and we're beyond the smoke stage. There's fires in county recording offices across the country."
John O'Brien, the register of deeds for Essex County in northwestern Massachusetts, conducted an audit of loans issued in 2010 and found 75 percent of the assignments to be invalid and a further 9 percent questionable.
LOAN REPACKAGING MUDDIED OWNERSHIP
One of the major problems that has emerged in the foreclosure crisis is that it is far from clear that many lenders foreclosing on properties actually own the loans and have the right to take action against them.
In many cases during the housing bubble that burst in 2008, original mortgages were repackaged and sold to so many investors
that it is now unclear who actually holds the loans
O'Brien could only find the current owners of the mortgages he studied in 287 out of 473 cases.
In the San Francisco study, which studied properties subject to foreclosure sales between January 2009 to November 2011, 45 per cent were sold to entities improperly claiming to be the owner of the loan.
"It is not impossible that there are homeowners who are alleged to have defaulted on loans to which they never fully agreed to and, further, are being foreclosed upon by lenders that might not even own such loans," the report stated.
One factor that probably caused the particularly high 84 per cent rate of illegal foreclosures in San Francisco is that California is a "non-judicial" foreclosure state.
In other words, the foreclosure process does not need to be overseen by a judge. That left the conduct of lenders in California - one of the hardest-hit states in terms of foreclosures - largely unscrutinized until the robosigning scandal gained prominence in late 2010.
In judicial foreclosure states such as New York, some judges have been taking banks to task for submitting faulty foreclosure paperwork.
But Ray Brescia, a visiting professor at Yale Law School and an expert in housing law, said foreclosure fraud had been as rampant in judicial states as non-judicial ones.
"This number around 80 percent is not a number we have not seen before," Brescia said, referring to both the issuing of faulty loans during the housing bubble and the foreclosure crisis that followed.
"There have been a very high level of irregularities across the country."