U.S. Supreme Court to decide on 2nd liens in bankruptcy
March 31, 2015
WASHINGTON (4/1/15)--The U.S. Supreme Court heard arguments last week in a case involving the stripping of a second lien when a borrower declares bankruptcy. CUNA has been monitoring this and other similar cases over the past few years because credit unions often make second mortgage loans.
At the heart of the case, Bank of America v. Caulkett, are two Florida homeowners who had second mortgages voided during Chapter 7 bankruptcy proceedings.
In its opening statement, Bank of America cited a 1992 Supreme Court case that does not allow a lien to 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.
CUNA hopes the court will continue to hold the security interests of a second lien; failing to do so could disincentivize credit unions from offering second liens.
The court is expected to release its ruling before the end of June.