Friday's Mass. Supreme Judicial Court ruling on foreclosures could affect thousands of homes in the state. It also casts into stark relief one of the major issues underpinning the foreclosure crisis: documentation.
Keeping track of who owns a home used to be simple, since banks would get your house's note and deed when you took out a mortgage, and would keep them on-hand as proof of ownership.
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
In the age of exotic financial instruments, things got very complicated. Here's a graphical representation from a compelling investigation on foreclosure fraud put together by the office of Florida's Attorney General:
Documents that used to sit safely in a vault became rather portable. So often, when a bank wanted to foreclose, the necessary documentation had vanished into the ether. In Florida, as the AG report points out, this led to astounding amounts of fraud, since a lot of people made money of the foreclosure process and saw little need to check that the foreclosures were legally valid prior to ramming them through.
At the moment there's little reason to think the level of foreclosure fraud in Massachusetts is as severe as it is in Florida, but still, the SJC's ruling underlines an important principle that has been swept aside in a wave of shady foreclosures: if you can't prove you legally own a property, you shouldn't be able to foreclose on it.