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Court Rules Against Banks In Pivotal Mortgage Case

The highest court in Massachusetts has upheld a lower-court ruling that invalidated two home foreclosures. The affirmation from the Supreme Judicial Court could affect thousands of other foreclosure sales.

It’s a blow to banks who’ve been trying to foreclose on homeowners. It also undermines the recovery of the housing market.

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The Massachusetts court system is basically telling U.S. Bancorp and Wells Fargo & Co that they cannot claim ownership of two homes because of missing paperwork. The SJC ruled in favor of the two Springfield homeowners who were behind on their payments. The court says it’s not clear the banks could take back ownership because they’d already sold the mortgages to other investors.

The ruling could create a legal mess for thousands of other homes across the state — some of which already have new owners.

Last fall, the banking industry's foreclosure machine came under intense scrutiny with the revelations that low-level employees called "robo signers" powered through hundreds of foreclosure affidavits a day without verifying a single sentence. At the time, analysts warned that the banks' allegedly fraudulent document procedures could imperil their ability to prove that they owned the mortgages.

The Supreme Judicial Court found that the banks, who were not the original mortgagees, did not make a required showing that they held the mortgages at the time of foreclosure. As a result, the court found, the banks did not demonstrate that the foreclosure sales were valid to convey title to the properties.

This program aired on January 7, 2011. The audio for this program is not available.

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