Recall all the speculation in housing that resulted in the crash that is currently causing large numbers of people to be foreclosed upon? That was due to mortgages being bundled together into huge slabs, sliced into small packages that were called SIVs (Structured or Special Investment Vehicles) and then traded like stock. (I did a series of posts explaining this debacle back in 2008 and the specific ones that dealt with this topic are #7 and #8.)

The result of this practice was that ownership of mortgages was diversified and it became unclear as to who the actual owner of any given property was, which enabled them to deny any responsibility for the upkeep of abandoned property as required by local ordinances. The blight on neighborhoods caused by this evasiveness was so bad that a Cleveland housing court judge got fed up and started levying penalties on whichever entity he could hold responsible.

But when it comes to selling off properties, the banks are not shy of claiming ownership. It turns out that banks, the very organizations that were instrumental in the crash, are now foreclosing on, and selling off, people’s property without proper documentation showing that they own the property. They decided they could just manufacture documents to show ownership.

Last fall, the banking industry’s foreclosure machine came under intense scrutiny with revelations that low-level employees called “robo signers” powered through hundreds of foreclosure affidavits a day without verifying a single sentence. At the time, analysts warned that the banks’ allegedly fraudulent document procedures could imperil their ability to prove that they owned the mortgages.

The Massachusetts State Supreme Court on Friday upheld a housing court judge’s ruling in that state that ordered a halt to two foreclosures unless the banks can properly documented their ownership. The history of that case can be read here.

To you and me, this would seem a perfectly reasonable requirement: you should not be able to sell something that you cannot prove that you own. But we live in a country in which banks have got used to thinking that normal rules don’t apply to them and these perfectly reasonable court rulings are being greeted with shock by the banking sector.

If this ruling is repeated in other states I wonder how long will it be before the banks demand of the Congressional and presidential clients that they pass special measures exempting them from the tedious business of carefully maintaining records that prove ownership?