The highest court in Massachusetts just made the foreclosure crisis even more complicated.
The Massachusetts Supreme Judicial Court ruled on Tuesday that the buyers of improperly foreclosed properties do not legally own those homes, leaving hundreds of Massachusetts properties in limbo, according to The Boston Globe.
This is the second ruling on foreclosures by the Massachusetts Supreme Judicial Court in less than a year. In January, the court invalidated foreclosures by banks that could not prove that they owned the mortgages at the time that they started the foreclosures.
The court went one step further in its latest ruling on Tuesday, saying banks can't legally transfer an improperly foreclosed home through a sale, according to Bloomberg News.
The buyers of improperly foreclosed properties now have a number of complex options if they want to to try to keep their homes, including suing the lender behind the foreclosure and attempting to "reforeclose" on the previous owner, according to The Boston Globe.
But the ruling could make it easier for homeowners to fend off foreclosures in the future, Harvard Law School lecturer Max Weinstein said in a interview with Reuters.
Other state courts have sided with homeowners in similar cases. The Supreme Court of South Carolina ordered lenders in May not to foreclose on homes until they could show that they had tried to work with homeowners to modify their loans, according to The Washington Post.
An appeals court in Florida recently invalidated a foreclosure by a bank that could not produce the proper paperwork, according to The Palm Beach Post.
And the Nevada Supreme Court recently ruled that banks should not proceed with foreclosures in which they could not produce the proper documentation or prove that they gave homeowners the opportunity to modify the loan, according to DSNews.com.
A glut of foreclosed properties on the market, dragging home prices down, is keeping the housing market depressed. New home sales fell in August for the fourth straight month, and housing prices remain low.
At the same time, banks are now sending out a growing number of foreclosure notices, as the number of Americans at risk of foreclosure has grown.
Banks have been under increased scrutiny for foreclosure practices after legal proceedings revealed that banks had been rushing through foreclosures without verifying information in the paperwork that they were signing. The dubious practice -- known as robo-signing -- may date back to the 1990s. Banks reportedly continue to rush through questionable foreclosures, according to investigations by Reuters and the Associated Press.