Reuters

Bank shares fell, weighing on broader stock indexes, on fears the decision could threaten lenders' ability to work through hundreds of thousands of pending foreclosures.

The Supreme Judicial Court of Massachusetts' unanimous decision on Friday upheld a lower court ruling. It is among the earliest cases to address the validity of foreclosures done without proper documentation.

That issue, including the use of "robo-signers" who approved foreclosure documents without reviewing them, last year prompted an uproar that led lenders such as Bank of America Corp, JPMorgan Chase & Co and Ally Financial Inc to temporarily stop seizing homes.

"A ruling like this will slow down the foreclosure process" for lenders, said Marty Mosby, an analyst at Guggenheim Securities in Memphis, Tennessee. "They're going to have to be really precise and get everything in order. It doesn't leave a lot of wiggle room."

Wells Fargo and U.S. Bancorp lacked authority to foreclose after having "failed to make the required showing that they were the holders of the mortgages at the time of foreclosure," Justice Ralph Gants wrote for the Massachusetts court.

In a concurring opinion, Justice Robert Cordy lambasted "the utter carelessness" that the banks demonstrated in documenting their right to own the properties.

Courts in other U.S. states are considering similar cases, and all 50 state attorneys general are examining whether lenders are forcing people out of their homes improperly.

Friday's decision applies in Massachusetts, and need not be followed by federal judges or by courts in other states.

Nonetheless, "it will be certainly cited as persuasive authority by anybody in a similar scenario who's trying to hold onto his home," said Robert Nislick, a real estate lawyer at Marcus, Errico, Emmer & Brooks PC in Braintree, Massachusetts.

LEAVING PAPERWORK BEHIND

Analysts said the decision may also raise the specter that loans transferred improperly will need to be bought back.

"What they were doing was peddling these mortgages and leaving the paperwork behind," said Michael Pill, a real estate partner at Green, Miles, Lipton & Fitz-Gibbon LLP in Northampton, Massachusetts who is not involved in the case.

The Massachusetts court rejected a request by the banks to apply the decision only in future cases, leaving homeowners already foreclosed upon without a remedy. Gants chided the banks for ignoring settled rules in their "rush" to sell mortgage-backed securities.

A spokeswoman for San Francisco-based Wells Fargo, Teri Schrettenbrunner, had no immediate comment on the decision.

By Jonathan Stempel and Dena Aubin

(Reuters) - In a decision that may slow foreclosures nationwide, Massachusetts' highest court voided the seizure of two homes by Wells Fargo & Co and US Bancorp after the banks failed to show they held the mortgages at the time they foreclosed.

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