WASHINGTON (6/2/15)--Homeowners cannot void a second mortgage using bankruptcy protection, the Supreme Court ruled Monday. The case, Bank of America v. Caulkett, concerns two Florida homeowners with second mortgages voided during Chapter 7 bankruptcy proceedings.
The homeowners sought to cancel the second mortgages after filing for Chapter 7, arguing that when both loans are underwater, the second loan loses all value.
Bank of America cited a 1992 Supreme Court case that found that a lien could not be voided based on the current value of the collateral, arguing that outside of bankruptcy, a financial institution would be entitled to have its lien stay with the property until it is paid in full.
The Supreme Court justices, in a unanimous decision Monday, ruled that “a debtor in Chapter 7 may not void a junior mortgage lien when the debt owed on a senior mortgage lien exceeds the current value of the collateral.”
CUNA has been monitoring this case, and other similar cases in recent years, since credit unions often make second mortgage loans.