A ruling by a Massachusetts court last week has seriously shaken up the banking community. Finding fault with a lax approach at two banks, the court said fairness to home owners demands that all foreclosures strictly follow the rules.

Last Friday’s decision seems a reasonable approach to the wrenching process of home foreclosure, but it was a shock to Wall Street, and bank stocks fell sharply. For months, the financial sector has dreaded the possibility that bankers would be held to the same exacting standards that borrowers face.

Such scrutiny has taken the mortgage industry by surprise. Paperwork regarding title and ownership was handled in bulk by low-level employees, and it was revealed last fall that “robo signers” processed hundreds of foreclosure affidavits each day.

In the case decided last week, bankers presented two similar cases before the Massachusetts Supreme Judicial Court, contesting a lower court’s refusal to certify that they had clear title. In both cases homeowners had clearly defaulted on their mortgages.

But unfortunately for them, the banks involved failed to actually acquire the mortgages before the foreclosures took place. Since a mortgage holders wield great power ”“ they can pursue foreclosure without judicial review ”“ strict adherence to procedure is required, the court said.

One of the judges criticized the “utter carelessness” of the banks, and commentators have lamented that the court’s 6-0 decision leaves great uncertainty about the status of any property that has passed through foreclosure.

In addition to the Massachusetts case, foreclosures are under investigation by the attorneys general of all 50 states as well as by the U.S. Justice Department and other agencies.

The consequences of all this scrutiny remain to be seen, but let’s hope they include a slowdown in the pace of foreclosures and revised terms for many hard-pressed home owners.

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Questions? Comments? Contact Managing Editor Nick Cowenhoven at nickc@journaltribune.com.