Almost everything I kill turns red and if I loot it the dude pops up and tells me I have broken my oath.
Stuff being marked red when it's dropped by monsters or enemies does sound like a bug. If you have a savegame showing that items are marked as owned by someone else when you think they shouldn't be then it may be worth submitting to Larian via the Report a Bug link up along the top of the launcher.
I'll move this thread into the Technical & Gameplay Problems subforum.
