More than five years after the housing crash, many homeowners are still feeling the effects. Hopes for a permanent solution to one remaining problem – clearing up problem titles for homes with a flawed foreclosure in their past – were dashed this week when Gov. Deval Patrick sent back a proposed bill passed by the Legislature to deal with the issue.

In the immediate aftermath of the crash, many foreclosures were carried out hastily, and often the foreclosing banks failed to get the proper paperwork in order before bringing the foreclosure action. In many cases, the documents that should have recorded transfer of ownership among banks and servicers were never properly created when the loans were issued. In 2008, in the landmark Ibañez case, the Land Court ruled that a bank had to have been assigned the mortgage before beginning the foreclosure process in order for a foreclosure to be legally conducted, a ruling subsequently affirmed by the state’s Supreme Judicial Court.

Banks were now on notice to mind their p’s and q’s, and post-Ibañez foreclosures have generally closely followed the guidelines. But that still left a huge problem: Thousands of foreclosures conducted between 2006 and 2008 were not valid, meaning that the former homeowner could still retain rights to the property. But in many cases, the home had long since been sold to a new owner. If the former owner returned to make a claim on the property, the new owner could face a costly legal battle. Such homeowners often found they could not sell the property themselves, or even refinance their loans, since title insurance companies are generally unwilling to issue a new policy on a property with a clouded title.

State Senate Bill 1987, unanimously passed by the Legislature last month, was intended to address these issues, creating a three-year statute of limitations for former homeowners who had been wrongfully foreclosed on to bring a claim. (If more than three years had elapsed between the bill’s passage and the foreclosure, the former homeowners would have had one additional year to bring a claim.) The three-year limit did not apply to claims against the foreclosing bank, just the new homeowner. Once the three years were up, an affidavit could be recorded affirming the new owner’s possession and clearing the title. The bill was sponsored by Sen. Michael Moore, D-Milbury, and endorsed by the Attorney General’s Office.

Attorneys for banks and the current homeowners thought that was a fair compromise. Claims for personal injury or professional malpractice also have a three-year statute of limitations, points out Rich Vetstein, a Framingham attorney and author of the Massachusetts Real Estate Law Blog. The bill’s failure will be a “real disappointment” for those families currently owning homes with clouded titles, he said.

Three Years Not Enough

Advocates for victims of foreclosure, like the Massachusetts Alliance Against Predatory Lending, took a different view, however, arguing that given the complexity of the cases, wrongfully foreclosed homeowners should have more time to bring their claims. Patrick sided with them, sending the bill back to the Legislature with an amendment extending the statute of limitations to 10 years from three.

“I commend the Legislature’s effort to address these problems. But I believe the proposed three-year period is insufficient. A family improperly removed from its home deserves greater protection, and a meaningful opportunity to claim the right to the land that it still holds,” Patrick wrote in a letter accompanying the amendment. “The right need not be indefinite, but it should extend for longer than three years.”

Supporters of the bill say that move will effectively kill it, since the Legislature is in informal session and must unanimously approve any amendment in order to certify the bill.

“It’s a poison pill,” sighed Richard M. Serkey, a partner at Winokur, Serkey & Rosenberg, P.C. in Plymouth and co-chair of the Real Estate Bar Association’s standards committee.

Without the bill, current owners will effectively remain in limbo. Some such owners have been able to clear their title by hiring lawyers and/or private investigators to track down the old owners and any other potential lien-holders and having them agree to give up their claim on the property. But such a process can take weeks or months and cost thousands of dollars in fees and payments, said Serkey, who has experience in resolving Ibañez-clouded titles for his clients.

The bill’s near-certain defeat is especially frustrating, because while every current owner with a clouded title will be forced to confront the problem should they want to sell or refinance their loan in the next five years, many of the wrongfully foreclosed homeowners have long since moved on.

“They’ve had five years [already]. What’s the likelihood that someone who’s lost their home will seek to regain title [now]?” said Serkey.

Email: csullivan@thewarrengroup.com