Mass. Court Ruling Confirms: Foreclosure Mess Far From Over

From Yahoo Tech Ticker:

Foreclosure-gate is back.

The Massachusetts Supreme Court has ruled against U.S. Bancorp and Wells Fargo in a case that could have serious implications for the already depressed U.S. housing market.

The high court found that the banks wrongfully sold two foreclosed homes by failing to show the proper paperwork at the time of the sale indicating they actually owned those homes and had the right to a) foreclose on those properties and b) sell the homes to new owners.

If this decision is echoed in other states, the foreclosure mess is going to get a whole lot messier.

There is already a huge backlog of potential home foreclosures sitting on banks’ books as a result of last year’s “robo-signing” scandal, which forced banks to undergo a self-imposed moratorium on foreclosure proceedings. It was expected that early this year these foreclosures would eventually go through and the problem would work itself out. (See: RealtyTrac: Foreclosures Drop in November But Will Come Roaring Back in 2011)

Now, the likelihood of that happening is much less.

In the wake of the court’s ruling, there may be increased scrutiny of deals already done. In addition, people may be less inclined to purchase a foreclosure property for fear that it might end in a repossession of the home.

Another freeze on foreclosures may be good for home prices in the short-term, but the long-term outlook seems more grim as RealtyTrac’s Rick Sharga told Tech Ticker last fall. About one-third of all sales are foreclosures sales, and a freezing up of related activity can’t help but create a “chilling effect” on the market.

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