Forensic Study Exposes Massive Foreclosure Fraud

Register of Deeds John O’Brien Releases Forensic Study, Finds Mass Fraud in Foreclosure Docs

By: David Dayen Thursday June 30, 2011 2:58 pm

Longtime readers know I’ve been covering the registers of deeds, county officials who wield some degree of power in the case of foreclosure fraud, because they hold in their offices a good deal of physical evidence about mortgage assignments and associated documents. Jeff Thigpen, the register of deeds for Guilford County, North Carolina, did a preliminary investigation of a set of documents in his office and found widespread fraud, particularly from forged documents. Thigpen’s key partner, John O’Brien, a register in Southern Essex County, Massachusetts, has been fighting this fight as well. He vowed not to record any documents he suspected of fraud, which would slow some foreclosures. He demanded that MERS pay millions of dollars in back recording fees which were not paid when banks tracked their own mortgage transfers on a database. But O’Brien hadn’t done the work of auditing his office. Until this week, at a convention for county registers.

At the Annual Conference of The International Association of Clerks, Recorders, Election Officials and Treasurers (IACREOT), Register John O’Brien revealed the results of an independent audit of his registry. The audit, which is released as a legal affidavit was performed by McDonnell Property Analytics, examined assignments of mortgage recorded in the Essex Southern District Registry of Deeds issued to and from JPMorgan Chase Bank, Wells Fargo Bank, and Bank of America during 2010. In total, 565 assignments related to 473 unique mortgages were analyzed.

McDonnell’s Report includes the following key findings:
• Only 16% of assignments of mortgage are valid
• 75% of assignments of mortgage are invalid.
• 9% of assignments of mortgage are questionable
• 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the Massachusetts Mortgage Fraud Statute.
• The identity of financial institutions that are current owners of the mortgages could only be determined for 287 out of 473 (60%)
• There are 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership can be traced.

McDonnell told O’Brien… “What this means is that the degradation in standards of commerce by which the banks originated, sold and securitized these mortgages are so fatally flawed that the institutions, including many pension funds, that purchased these mortgages don’t actually own them because the assignments of mortgage were never prepared, executed and delivered to them in the normal course of business at the time of the transaction. In a blatant attempt to engineer a ‘fix’ to the problem, the banks set up in-house document execution teams, or outsourced the preparation of their assignments to third parties who manufactured them out of thin air without researching who really owns the mortgage.”

This is why, and I’ll get into this in a future post, the Bank of America settlement with investors, which appears to indemnify the bank and facilitate a conspiracy of silence between banks and investors on these securitization issues, is a really raw deal. It “solves” one problem, BofA’s exposure to the investors in its mortgage backed securities. But it in no way solves the much larger problem, namely who actually owns these mortgages. An independent auditor, after looking at the evidence, could not figure it out.

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