U.S. Supreme Court: 2Nd Mortgages On Underwater Homes Not Voided In Bankruptcy

U.S. Supreme Court Says 2nd Mortgages on Underwater Homes Cannot be Voided in Bankruptcy

On Monday, June 1, 2015, the U.S. Supreme Court overturned an 11th Circuit Court of Appeals ruling in a Florida case by holding that a second mortgage on a home with a mortgage balance exceeding its current value cannot be voided during bankruptcy.  The ruling in Bank of America, N.A. v. Caulkett, means that homeowners cannot “strip off” second mortgages through bankruptcy, at least not in Chapter 7 bankruptcy cases and likely, not in Chapter 13 cases as well. The lender in the case was able to retain the ability to foreclose on the property if its value eventually increases by successfully arguing that second liens should be treated as “secured” thereby surviving the bankruptcy pursuant to the Supreme Court’s 1992 ruling in Dewsnup v. Timm.  Below is a link to the Court’s unanimous Opinion: 

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