Answer: when there are no mortgages backing it.
The Massachusetts Supreme Court today ruled against US Bancorp and Wells Fargo, finding that both banks had failed to prove that they owned securitized mortgages they had foreclosed upon, rendering the foreclosures invalid. See the Bloomberg story here.
A number of people have posted their take on the decision. Here are Karl's, Yves' and Calculated Risk's. I'm somewhere between Karl and Yves. CR mistakenly assumes that the problems are curable, that the banks just mislaid the paperwork. I'm with Karl in believing that the paperwork never existed or was destroyed, which means that the banks won't be able to cure the problem. Indeed, if the banks had the paperwork in this case, they had plenty of time to find it and produce it before the Mass Supremes ruled.
Perhaps my favorite take on the decision came from a CNBC pundit who argued that the U.S. Supreme Court will have to weigh in, and that all this decision will do is cause further delay in "clearing the inventory" of housing. As to the first point, I see nothing in the Ibanez decision that would provide the SCOTUS subject matter jurisdiction because it is purely a matter of state law. As to the second point, what the Mass Supremes have done is give two families their homes back, i.e., it cleared that inventory quite effectively. This likely will be true for many, many homes in Massachusetts: the inventory will be cleared because homes were not properly foreclosed upon in the first instance and should never have been on the market, i.e., they should never have been part of the housing inventory.
Going back to the CNBC pundit, I found it both creepy and disgusting that the guy cared more about the housing market working "efficiently" than following the rule of law.
