The highest court in Massachusetts on Friday ruled against U.S. Bank National Association and Wells Fargo Bank, N.A., in a mortgage foreclosure case that has vast potential implications for the banking industry.

The Massachusetts Supreme Judicial Court upheld a lower court's decision that invalidated two mortgage foreclosure sales because the banks, in their capacity as trustees for mortgage securities, did not prove that they actually owned the mortgages at the time of foreclosure.

The mortgage foreclosures in question are both for homes in Springfield, Massachusetts-one that used to be occupied by Antonio Ibanez and another that was occupied by Mark and Tammy LaRace.Both previous occupants took out mortgage loans in 2005, and foreclosure sales for both homes took place in 2007. Minneapolis-based U.S. Bank was the mortgage securities trustee for the Ibanez home, and San Francisco-based Wells Fargo-which has major Minnesota operations-was the mortgage securities trustee for the LaRace home.

Banking industry and legal experts are saying that Friday's court decision could lead more borrowers to sue for wrongful foreclosures in the months and years ahead.

The court decision comes at a time when foreclosure procedures conducted by mortgage lenders across the country have come under a microscope. Mortgage firms nationwide have been accused of “robo-signing”-or letting individuals sign off on as many as 10,000 affidavits within a month.

In October, Minnesota Attorney General Lori Swanson asked 15 of the country's largest mortgage lenders to voluntarily stop home foreclosures in Minnesota until they demonstrate that they are adhering to the proper legal process. Later that same month, Wells Fargo admitted that it made mistakes in thousands of foreclosure affidavits and said that it would refile documents in order to fix the mistakes. The company said at the time that it did not believe that any of the mistakes led to foreclosures that should not have otherwise occurred-and that it had no plans to stop foreclosure proceedings.

In Friday's decision, Supreme Judicial Court Associate Justice Robert J. Cordy wrote: “What is surprising about these cases is . . . the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order.”

U.S. Bank and Wells Fargo issued separate statements on Friday, each saying that the loan in question was not originated, owned, or serviced by it-and that the related foreclosure was conducted by the loan servicer.

“As trustee of a securitized pool of loans, Wells Fargo expects the entities who service these loans to abide by all applicable state laws, including those laws that govern foreclosure sales,” Wells Fargo added.

Wells Fargo also said that the court's ruling “does not prevent foreclosures on loans in securitizations,” and that “the court simply set forth a standard legal process that mortgage servicers must follow in Massachusetts.”

U.S. Bank is a subsidiary of Minnesota's largest bank-holding company, Minneapolis-based U.S. Bancorp, which had $284 billion in assets as of June 30, 2010.