A new and potentially significant wrinkle was added to the ongoing crisis in the housing market when the Massachusetts Supreme Court ruled on Tuesday that the purchasers of a home that was not properly foreclosed on are not the legal owners.

The court’s ruling, writes the Boston Globe, “leaves in limbo hundreds, if not thousands, of people who bought homes seized by lenders under questionable circumstances. They are left with no easy recourse; among their options are to sue the lender behind the botched foreclosure or “reforeclose” on the prior owner.”

The bank in question used “robo-signing” in which documents were automatically signed without proper review. In order to maximize profits, banks throughout the country quickly foreclosed on millions of properties.

This is the second such ruling from the Massachusetts Supreme Court in the last year. In the first case the justices “overturned foreclosures of two properties in Springfield by U.S. Bancorp and Wells Fargo after the banks could not prove they owned the mortgages they foreclosed on.”

The case has potentially far-reaching consequences: “Banks that failed to convey title during foreclosure have clouded the title of any property for the foreseeable future, meaning that whoever buys up the foreclosed property may not be the legal owner. And extrapolating that out, all the homes across the country where the banks failed to convey title properly through securitization have clouded the titles there. That means tens of millions of homes pretty much have no legal ownership chain.”

The Massachusetts decision occurs in the middle of attempts by federal officials to negotiate a national settlement in the robo-signing scandal. California, one of the hardest hit states, recently pulled out of these talks fearing banks were being let off far too lightly.

The Massachusetts court’s decision may bolster efforts by groups organizing to prevent foreclosures – groups like Project No One Leaves, City Life Urbana and New Bottom Line. A PBS story on some of their organizing tactics used can be seen here.

Some groups are using what is called a “sword-and-shied” strategy. The sword, they say, is “encouraging residents to stay in their homes, and to make their stories public, we organize blockades, vigils and other public actions to exert public pressure on the banks.”

The shield involves informing “bank tenants of their rights and work with legal services & progressive lawyers, to use aggressive post-foreclosure eviction defense to get eviction cases dismissed, win large move-out settlements (if it makes sense for that family/person), and force the banks to reconsider foreclosure evictions.”

In yet another dimension of the real estate crisis, Citigroup on Wednesday agreed to pay a $285 million settlement for defrauding investors during the height of the housing crisis by selling them securities and then betting against them.

To date no one has been criminally prosecuted for the housing scandal.

Photo: The Sword and the Shield