What to make of the Massachusetts high court decision that nullified foreclosures by Wells Fargo and U.S. Bancorp and returned the property to the owners, even though no one disputes that they were in default. Neither borrower contested the foreclosures.

The court basically said the banks, which were acting as trustees for mortgages that had been securitized, did not prove they owned the note underlying the property. In fact, at the time they foreclosed, neither bank had been assigned the mortgages. That happened after the foreclosures.

The big issue here is what effect this will have elsewhere. It will obviously embolden plaintiffs' lawyers and critics of current foreclosure practices. In Massachusetts, the decision amounts to red meat in front of attorneys, who may start a flood of attempts to overturn foreclosures, even if the debtor was obviously in default. Around the country, other state judges may take a new look at this issue.

We've noted before that no one should assume state judges and bankruptcy judges are somehow immune from populist pressures. Banks should probably assume they will have to prove their documentation and practices are legally up to snuff. To this end, they cannot hire fast enough.

If foreclosures en masse are declared null, that would qualify as a huge disaster on many levels. Banks might end up giving away their collateral like Wells Fargo and U.S. Bancorp just did in Massachusetts. In addition, MBS bond investors would suddenly have an airtight case for putbacks. Big banks should be feeling nervous right about now.

For more:
- here's a Boston Globe article

Related Articles:
New Jersey judge to suspend foreclosures?
Foreclosure 'victims' in California can't hire attorneys
Judges increasingly contest foreclosure attempts