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SCOTUS: Bankrupt homeowners can't void second mortgage

June 1, 2015

A unanimous Supreme Court of the United States ruled homeowners who declare Chapter 7 bankruptcy can't void a second mortgage even if the home isn't worth what they owe on the first mortgage.

The justices on Monday ruled in favor of Bank of America in two Florida cases where bankrupt homeowners wanted to "strip off" a second loan because they were underwater on the primary mortgage.

Lower courts allowed both homeowners to nullify the second loans and the Atlanta-based 11th U.S. Circuit Court of Appeals affirmed both cases.

But Bank of America said the rulings conflicted with Supreme Court precedent. The company argued that the second loan might be repaid eventually if the property's value rises.

The homeowners argued that the second loans were basically worthless.

The case is Bank of America, N.A. v. Caulkett, 13-1421.

 

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