When Luther talks about justification (that is, forensic justification) he is famous for describing us as "totus iustus" (totally just) and "totus peccator" (total sinner). Even though most Roman Catholics I talk to find this completely mind-blowing (for some reason), the majority of Lutheran I talk to seem to think this make sense and it's pretty simple. Empirically, as I live my life, I can't really obey the law completely. My being and nature are utterly corrupted by sin. They're not so corrupted by sin that I'm not human anymore. But they are so corrupted that I can't have a righteous status before God by my own efforts. Because of this, Jesus imputes his righteousness to me and I receive it by faith. So, I'm just because of Jesus' righteousness, and I'm sinful, because in and of myself I never really get better until temporal death.
Now, this doesn't mean that according to how I experience myself or how other experience me I don't get better. As Luther notes in the Galatians commentary (1531), because the Holy Spirit moves me towards better behaviors, people will and I myself will notice that I give into sin less easily, and am more virtuous, even if not perfect. At one point he gives the example of a man who prone to anger. He will not stop getting angry, but the Holy Spirit will change his heart so that he is simply less prone to it. On this level, one could describe the human person with faith as being partim-partim. Part sinner- part saint. This is of course not before God (coram deo), but before the eyes of the world (coram mundo). Before God, my status is always the same this sin of temporal death- all my good works are but dirty rages.
This last point brings up how sanctification works for Luther coram dei. Sin, as Luther notes (in the same commentary) is not something you remove like paint from a wall. Consequently, faith both sanctifies us, and yet at the same time, by definition, makes us unsanctified.
Let me explain what I mean on this point.
Faith trusts in God's Word and therefore sanctifies us. As Paul says, that which is not faith is sin (Rom 14:23). The paradox for Luther is that to believe and trust in God's Word is to believe and trust that I am a sinner. In that sense, I am made righteous in believing I am unrighteous. The more I believe that I am unrighteous, the more I become righteous. The more I believe I am unrighteous, the more I will trust in the gospel as a remedy for unrighteousness.
Luther argues this way to a certain extent in the Romans commentary (1516- though this is in my estimation pre-Reformation it still has many good insights), and makes statement in this regard in Galatians as well (1531).
Again, this doesn't mean that sanctification doesn't have a partim-partim dimension to it coram mundo. Coram deo, though, we must insist with Luther, that sanctification is always a paradox. As our righteousness increases, our sinful status does as well.
In temporal death, our sinful status and nature comes to its omega point. God completely destroys us in judgment, while re-creating us and thereby sanctifying us wholly. This the final goal of our simul status.